2019/06/28 00:00:00

International: Markets continued its upward momentum in April on the back of better than expected US first quarter earnings, the US Federal Reserve that continues to lean marginally towards accommodative monetary policy and indications of a positive response by the Chinese economy to recent stimulatory measures. However, after a smooth build-up to what was expected to be a positive outcome for the US/Chinese trade negotiations, the talks unexpectedly derailed at the time of writing resulting in fresh tariff hikes flying to and fro leaving uncertainty and market volatility in its wake. Hopes for a final breakthrough are now pinned on a Trump/Jinping meeting at the G-20 conference towards the end of June. Adding to the uncertainty is the lingering worry about a possible global economic slowdown and the ongoing Brexit saga where little progress seems to be made on the face of it. And then there’s concern about the late cycle stage of one of the longest bull markets on record and how and when it’s eventually going play out. Recent mainline economic data still confirm a strong US economy, none more important than the employment data for April which continued to build on March’s solid gains. The US economy generated 263 000 new non-farm jobs in April compared with an expected gain of 190 000 while the unemployment rate drifted down to 3.6%, the lowest number since 1969. Miraculously the tight labour market still doesn’t add to inflation as wage growth softened somewhat compared to the previous month. Against this background and with the first quarter northern hemisphere corporate earnings season having just been completed, overall earnings came in better than the expected. Solid gains were recorded in April albeit at higher levels of volatility – the MSCI All Country +3.00% (+16.47%ytd); the Dow Jones +2.66% (+14.79%ytd); the S&P 500 +4.05% (+18.25%ytd) and the MSCI Emerging Markets Index by +0.75% (8.21%ytd) - all in US dollars. Local: The local economy remains in dire straits and apart from a few green shoots, negative data continued to outweigh the positives in April. The recent weak economic data indicate that GDP growth will remain under pressure, at least during the first quarter of 2019. This was confirmed by recent IMF, World Bank and SA Reserve Bank assessments. With the National Election done and dusted, it’s now up to President Cyril Ramaphosa to set the country on a new course. A lot is at stake and the focus will mainly be on the quality and size of his new cabinet, to what extent new economic initiatives and structural reforms will impact positively on business and consumer confidence and the firmness with which the wrong doers are being dealt with. Among recent negative economic data were manufacturing and mining output that posted declines in quarter 1, consumer confidence that declined below the long-term average, retail sales growth that slumped to +0.2% in March (year on year) from +1.4% in February and worse than consensus of +0.6% and unemployment that deteriorated further to 27.6% in the first quarter of 2019. Among the positives were SA’s trade balance that surprised to the upside in March, the manufacturing PMI that recovered marginally in April but remained below 50 and the SACCI business confidence index that improved to 93.7 index points in April from 91.8 in March. In line with global markets, the SA equity market advanced further in April – the FTSE/ JSE All Share index gained +4.23% (+12.54%ytd). All the Kruger funds recorded solid gains – Equity by +3.55% (11.61%ytd); Balanced FOF by +2.77% (+9.42%ytd); Prudential FOF + 1.74% (+7.20%ytd) and Global FOF by +2.09% (+12.13%ytd). The new Balanced Fund advanced by +2.96 (+8.89%ytd) and the Prudential Fund advanced by +1.96% (+6.79%ytd).