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Equity markets making a slow recovery

Review of global markets over the last trading week.

Following a soft third quarter, equity markets appear to have started a recovery which accelerated as last week progressed. Gains were broad-based, although firmly led by a sharp rebound in the resource sector.

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Top gainers

The dollar has weakened following worse than expected Trade Balance and Services PMI data out of the US, a move furthered by dovish Federal Open Market Committee (FOMC) meeting minutes released last Thursday. The data points have furthered sentiment that the current accommodative monetary stance in the US could be prolonged into 2016. In turn, the weaker dollar has provided a short-term inflationary lift to commodity prices.

Local resource counters have gained sharply as a result, a move which looks to have been exaggerated by short covering in the market.

Crude oil rose sharply over the week, supported by reports of falling production in the US and Russian airstrikes commencing in Syria. Sasol and BHP Billiton were the most notable beneficiaries of the rising oil price on our local exchange.

Top decliners

SABMiller leads the blue chip decliners list, as the proposed merger with Anhueser Busch InBev (ABI) falters for the time being. ABI finally released a formal offer of GBP42.15 per issued ordinary share of SABMiller, which was promptly rejected by the SAB board, as the offer price was only 15 pence per share more than the figure which was rejected in meetings preceding the formal offer. SABMiller has alluded to the offer as undervaluing the strategic geographical positioning of the company and in turn the future growth potential of its business.

The group announced on Friday that it plans to increase its cost savings initiatives announced in May 2014. The group’s efficiency programme aims to save at least $1 050 million by 31 March 2020, extending the previously guided cost savings target of $500 million by March 2018.

Newswires are also suggesting that SABMiller might receive a final bid from ABI of between $43 and $44 per ordinary share before the Wednesday deadline this week.

The week ahead

The last few months of trade balance data reported from China, have been negative catalysts for markets in general. A continuing contraction in the value of both imports and exports have elevated concerns around global growth. Tuesday will therefore see the release of September’s Chinese trade balance data being a key data point for the week.

In the US, markets will find importance with Thursday’s CPI inflation data, in lure of the timeline theme relating to monetary tightening in the world’s largest economy.

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