Market uncertainties, driven by Steinhoff, creates explosive 2017 end

Dec 10 2017 12:27
Bianca Botes

IN financial markets there are always lessons to be learnt, and this week’s lesson is that a “safe bet” is not always so safe. Those following the equities markets have probably heard the ins and outs of the Steinhoff debacle by now, or at least the “available ins and outs”, as there has been very little clarity on exactly what the mistakes are that former CEO Markus Jooste admitted to in his very cryptic letter to colleagues. 

Remaining in equity markets, most of the major indices closed stronger on Thursday, irrespective of the bloodbath being witnessed by both Steinhoff and EOH shares. The JSE All Share Index managed to tick up slightly, closing 0.01% higher, while the Top 40 Index gained 0.16%.

Moving abroad, we saw some recovery in tech stocks and a generally firmer Asian market, while European markets remained subdued due to the political pressures unfolding in Germany. Both the Dow and the S&P500 opened stronger on Thursday as progress was seen to be made on the tax bill in the United States (US). 

Local data has been surprisingly upbeat, eliminating some of the eroded sentiment. The GDP figures released on Tuesday (2% versus a market expectation of 1.7%), coupled with Thursday’s Net FX reserves coming in at R42.689 bn (against a market expectation of R42.7 bn), present a much needed boost given the lack of confidence engulfing the country at the moment. 

In currency markets we saw the rand once again showing off, as the perceived lead by Cyril Ramaphosa in the ANC leadership race, alongside stronger local GDP figures and a weaker US dollar all culminated to buoy up a stronger local currency this week, which reached a low of R13.45 on Tuesday afternoon.

Thursday, however, saw the US dollar gain some momentum on the back of the tax reform bill, pressuring the rand back down to the mid R13.60s. We expect the rand to remain volatile leading up to, and following, the ANC elective conference as key events following the  conference will set the backdrop for the economic landscape for the Republic.

These events include the State of the Nation address, the February 2018 Budget Speech and, of course, the anticipated downgrade decision by Moody’s.

On Thursday evening, at the time of writing, the rand was trading softer by 1.51% against the greenback at R13.72, while losing 1.4% against the euro and 2.19% against the British pound to trade at R16.16 and R18.48 respectively.

In commodities, oil continues to lead the charge, trading at US$61.85 a barrel, while gold is flat at the US$1 253 per fine ounce level. Copper and palladium both edged higher, gaining 0.15% and 1.62% respectively, while platinum lost some of its sparkle and was seen trading softer by 1%.

US non-farm payrolls will be released today, with analysts expecting the US to have added 200 000 jobs, indicating a slight slowdown in the rate of job creation in the US. Any figure exceeding the 200 000 mark will, however, see the rand coming under further pressure.

As is always the case during important data releases, the rand is expected to behave erratically, especially in the face of a stronger US dollar, some shocks to rand-denominated equities, and with growing political anticipation weighing in. 

With all the current uncertainties hovering over the local market, one thing is certain: 2017 is definitely going out with a bang. 

Bianca Botes is the Corporate Treasury Management of Peregrine Treasury Solutions

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steinhoff  |  eoh  |  markus jooste  |  markets  |  rand  |  sa ecnomy


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