Macro economic front
The euro zone has taken centre stage as the primary catalyst for global market weakness this week, as German economic data continues to dissapoint with weaker than expected industrial production and trade balance data further questioning the recovery within Europe.
The combined European economy is even larger than that of the US, and when we add the theme prevalent in recent weeks, relating to concerns of a slowing Chinese economy, a potentially dangerous macro-economic picture is painted. The International Monetary Fund (IMF) has downgraded its outlook for global growth, doing little to ease sentiment,.
A significant increase in volatility can be noted by the steep rise in the Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX). The VIX, often referenced as the ‘Fear Index’ has moved to its highest level in nearly eight months, starting the week below 15% and gaining throughout the week to within a breathe of 19%.
With this in mind, it has been another tough week for equity markets with only a few shares managing to squeeze out small gains, as selling remains indiscriminate, with broad-based sector losses highlighting an elevated level of fear present in markets.
The top movers for the week
*As of 13:30 on October 10
Surprisingly, the gainers lists finds itself headed up by some of the worst decliners in preceding weeks. While commodity prices remain pressured Assore, Impala and Anglo American Platinum have managed to outperform fellow blue chip counters. With the underlying platinum price nearing parity with gold and testing the $1200/oz mark (earlier in the week), the relative outperformance of platinum counters appears surprising.
The marginal gains do elevate themselves from a very low base, but perhaps we are seeing evidence that the severe negativity being priced in is starting to reach a point of capitulation, providing far sighted investors a percieved value offering.
The decliners list witnesses Sasol as the worst performer this week, having given up almost 9% over the period. Sasol’s severe decline follows a weaker price of brent crude (now trading below $90/barrel) and a stronger rand (which has rebounded from recent lows), further exaggerated by the share price adjusting for a R13.50 dividend this week.
See client sentiment on Sasol below:
Fellow rand hedge counters Mondi, Discovery and Mediclinic found themselves underperforming locally listed equities, as the rand gravitates back towards the R11/$ mark and macro economic concerns persist.
The rand, although off its best levels of the week, found renewed strength following minutes from the Federal Open Market Committee (FOMC) meeting in the US. The committee alluded to a longer time horizon before the rate tighening cycle in the US would start.
In the week ahead investors and traders alike, hoping for a relief rally, will be looking towards macro economic data for potential catalysts. Most noteably these will be the expected Chinese trade balance data on Monday, German ZEW Economic Sentiment data on Tuesday and US Federal Reserve Bank Chairperson Janet Yellen’s public address on Friday.
Graphs sourced from IG Insight
Shaun Murison is a market analyst at IG. Follow him on Twitter: @ShaunMurison_IG