Positive US jobs report increases likelihood of Fed tightening

Chinese markets reawaken this week.

There was an abundance of market catalysts in play over the past week as three of the world’s largest economies (US, Europe and China) rotated turns in guiding global sentiment.

China

Chinese manufacturing PMI data kicked things off with an index reading slightly below consensus, although the real disappointment to markets was the services PMI data, which declined significantly from the previous months reading and fell far short of consensus estimates. The latter part of the week saw Chinese markets closed to mark the anniversary of Japan’s surrender in WWII and in turn the market focus shifted to Europe.

Europe

The European Central Bank (ECB) lifted market sentiment, after it was suggested that the central bank stood ready to expand the current stimulus measures in place, as slower growth in China and emerging markets threatens what is a fragile economic recovery within the region. The ECB has already embarked on a bond-purchasing program dated until September 2016 and amounting to over $1 trillion.

US

The US closed off the week with the monthly jobs report, which saw 173 000 new jobs added to the non-farming payroll (NFP) in August, while the unemployment rate fell to 5.1%. The US has managed to produce a positive NFP figure every month since July 2011 and the unemployment rate is now realised at seven-year lows. While the news was good, markets reacted negatively as the data suggests an increased probability for rate tightening from the Federal Reserve in September this year.

Local

South Africa’s trade balance data revealed a R397 million deficit in July, while the previous month’s (June) trade surplus was revised lower to R5.5 billion from R5.8 billion. The figure sees a 12% increase in imports with only a 4.7% increase in exports resulting in the deficit. The accumulated deficit for 2015 is now considered at R25.2 billion, which is less than half that realized over the same period in 2014.

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Source: IG

Top gainers

The Bidvest Group outperformed fellow blue chip peers following the release of the company’s full-year results. The group saw strong sales growth in most of its divisions, although the stand out performance was realised from the food services operations, particularly in Europe and the UK Bidvest Group sales increased by 11% and operating profit by 8.6% over the full-year reporting period. A gross final dividend of 483c per share has been declared.

Anglo American Platinum (Amplats) is said to be in advanced talks with Sibanye Gold in lieu of selling off its Rustenburg assets. In restructuring efforts, amid a difficult trading environment, Amplats is looking at the possible sale or separate listing of the aforementioned assets.

Top decliners

The Mr Price Group saw a single day sell-off in excess of 13% following the release of a 21-week trading update. The negative reaction followed significantly slower than expected sales growth of 9% in the reporting period. The group has cited lower levels of consumer confidence, some poor fashion calls and the late onset of winter as being among the reasons for the slower than expected sales growth, which was realised. 

The Sanlam Group saw normalised headline earnings per share increasing a marginal 4% over their interim reporting period. The strong performance in the comparative period was highlighted as providing a strong base of comparison while economic headwinds, particularly in South Africa (the groups largest market), were also said to have further dulled the current results.

The week ahead

The new week see’s the reawakening of Chinese markets after being closed for the latter part of last week. China is set to report all-important trade balance data on Tuesday and inflation data on Wednesday. In the US Producer Price Index (PPI) and consumer sentiment data will be closely monitored at the end of the week (Friday). Further indications around the health of South Africa’s mining and manufacturing sectors will be assessed in Thursday’s production and sales reports. 

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