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Port Elizabeth - The coming week might be quite trying for the JSE as small cracks started to appear in the strong bull run during the last week and negative news keep stacking up.
In essence, the risk is increasing that something will trigger a change in investor sentiment which will see a revaluation of share prices to more realistic levels.
There are several factors weighing on the market, such as the possibility of another devastating strike if Numsa, the metalworkers' union, tries to prove that their members and shop stewards are better and tougher than their counterparts in the platinum industry.
The economy can ill afford to take another beating if all metalworkers down tools for a few months.
Stats SA also announced last week that producer price inflation is still high. The producer price index increased by 8.8% in May compared to May last year, following an 8.9% increase in April. This does not bode well for consumer prices a few months down the line.
In addition, the increase in the petrol price by another 31c per liter this week - a significant increase of more than 2% - will put further pressure on consumer prices and more pressure on the Reserve Bank to increase interest rates at their next monetary policy committee meeting.
It is thus not surprising that the Reserve Bank’s composite leading economic indicator decreased by another 1.5% in April after the decline of 2% in March.
This index combines different economic figures - such as new car sales and plans for new buildings – which serves as a good indication of sentiment and economic activity in coming months. The decline in the composite leading indicator mirrors the downward trend during the last few months of similar confidence indicators calculated by different institutions.
While investors ignored the negative news during the last few months and put more weight on positive news to push the JSE to consecutive new heights, things seemed to have slowed somewhat during the last week. Share prices seemed to have struggled to squeeze out small increases to achieve records.
The market ran out of steam and the JSE Top 40 index ended the week a few hundred points lower.
Most large shares declined by around 2% during the last week, such as Bidvest [JSE:BVT], Naspers [JSE:NPN], SABMiller [JSE:SAB] and MTN Group [JSE:MTN]. Some showed larger declines, including British American Tobacco SA [JSE:BTI] which fell 4% and Anglo American [JSE:AGL] which dropped 3%.
Platinum shares ended the week lower after a relief rally when mineworkers ended their strike and started to return to work. Anglo American Platinum [JSE:AMS] ended the week nearly 6% lower and Impala [JSE:IMP] dropped 4.4%.
Even gold shares did not do so well, despite a stronger gold price. Gold shares dropped by around 3% compared to the previous week, but might pick up a bit in the coming week.
Industrial, financial and retail shares did little to bring sparkle to the dull market. Of interest were the increase in the prices of Steinhoff International [JSE:SHF] and its subsidiary JD Group [JSE:JDG] which increased in contrast with the weaker market. Steinhoff is seeking an offshore listing and there might just be something more happening soon.
Telkom [JSE:TKG] continued to rise for the second week, while African Bank [JSE:ABL] continued its very volatile recovery.
The week ahead
Of interest will be the publication of the growth in the money supply by the Reserve bank this week. This is an important indication of economic activity because money supply is directly linked to the demand for money to fuel spending and investment in the economy.
At the same time, the Reserve Bank will announce the level of private sector credit extension by banks which will give further indication of private spending and people’s expectations.
Naamsa will say how many new cars South Africans were prepared to buy during June, following rather subdued sales in May.
Another economic figure to watch is FNB’s business confidence index for the second quarter of 2014.
Harmony Gold [JSE:HAR] will announce its final results, soon to be followed by other gold mines.
In all, investors can expect a volatile week on the trading screens.
In essence, the risk is increasing that something will trigger a change in investor sentiment which will see a revaluation of share prices to more realistic levels.
There are several factors weighing on the market, such as the possibility of another devastating strike if Numsa, the metalworkers' union, tries to prove that their members and shop stewards are better and tougher than their counterparts in the platinum industry.
The economy can ill afford to take another beating if all metalworkers down tools for a few months.
Stats SA also announced last week that producer price inflation is still high. The producer price index increased by 8.8% in May compared to May last year, following an 8.9% increase in April. This does not bode well for consumer prices a few months down the line.
In addition, the increase in the petrol price by another 31c per liter this week - a significant increase of more than 2% - will put further pressure on consumer prices and more pressure on the Reserve Bank to increase interest rates at their next monetary policy committee meeting.
It is thus not surprising that the Reserve Bank’s composite leading economic indicator decreased by another 1.5% in April after the decline of 2% in March.
This index combines different economic figures - such as new car sales and plans for new buildings – which serves as a good indication of sentiment and economic activity in coming months. The decline in the composite leading indicator mirrors the downward trend during the last few months of similar confidence indicators calculated by different institutions.
While investors ignored the negative news during the last few months and put more weight on positive news to push the JSE to consecutive new heights, things seemed to have slowed somewhat during the last week. Share prices seemed to have struggled to squeeze out small increases to achieve records.
The market ran out of steam and the JSE Top 40 index ended the week a few hundred points lower.
Most large shares declined by around 2% during the last week, such as Bidvest [JSE:BVT], Naspers [JSE:NPN], SABMiller [JSE:SAB] and MTN Group [JSE:MTN]. Some showed larger declines, including British American Tobacco SA [JSE:BTI] which fell 4% and Anglo American [JSE:AGL] which dropped 3%.
Platinum shares ended the week lower after a relief rally when mineworkers ended their strike and started to return to work. Anglo American Platinum [JSE:AMS] ended the week nearly 6% lower and Impala [JSE:IMP] dropped 4.4%.
Even gold shares did not do so well, despite a stronger gold price. Gold shares dropped by around 3% compared to the previous week, but might pick up a bit in the coming week.
Industrial, financial and retail shares did little to bring sparkle to the dull market. Of interest were the increase in the prices of Steinhoff International [JSE:SHF] and its subsidiary JD Group [JSE:JDG] which increased in contrast with the weaker market. Steinhoff is seeking an offshore listing and there might just be something more happening soon.
Telkom [JSE:TKG] continued to rise for the second week, while African Bank [JSE:ABL] continued its very volatile recovery.
The week ahead
Of interest will be the publication of the growth in the money supply by the Reserve bank this week. This is an important indication of economic activity because money supply is directly linked to the demand for money to fuel spending and investment in the economy.
At the same time, the Reserve Bank will announce the level of private sector credit extension by banks which will give further indication of private spending and people’s expectations.
Naamsa will say how many new cars South Africans were prepared to buy during June, following rather subdued sales in May.
Another economic figure to watch is FNB’s business confidence index for the second quarter of 2014.
Harmony Gold [JSE:HAR] will announce its final results, soon to be followed by other gold mines.
In all, investors can expect a volatile week on the trading screens.
