ARTICLES

Market Overview

This week, the US Federal Reserve Bank’s monetary policy committee (MPC) held interest rates unchanged at their historically high levels and said that they intended to hold rates at these high levels for longer than previously expected. This information was followed by the April 2024 non-farm job creation number which came in at 175 000 – considerably lower than expected and almost half of March’s revised 315 000 figure.

Markets have mostly reacted to these numbers negatively. The bulls on Wall Street have been trying to “buy the dip” for the past ten days in the hope that the correction is over. Despite the strong close on Friday which saw the S&P gain 1,26%, we believe that the correction may not yet be over.

One of the indications is that the drop in the price of oil during this correction on Wall Street is persisting. Oil closed at around $83 on Friday – significantly down on its high of over $91 on 5^th April and almost 7% down on the week.

The drop is partly due to the general relaxation of tensions in the Middle East where a ceasefire in the Israel/Gaza war may be imminent. It is also partly due to the fact that the driving season in America is almost over and the demand for fuel usually drops off as the summer holidays come to an end.

The fall in the oil price is good news for the Biden election campaign because it impacts almost all Americans positively – and it is bad news for Russia and Putin who rely on oil revenues to fund the on-going war in Ukraine. Consider the chart of the price of North Sea Brent oil:

Here you can see that after making a cycle high at $91.60 on 5^th April 2024, the price of North Sea Brent has been falling, culminating in 5 down days last week. The downward trend broke through the upward trendline which has been in existence since December last year and possibly indicates a new downward trend.

Of course, the weakening oil price is very good for South Africa and will help to bring the price of petrol down from its current high levels above R25 per litre. It will also help the rand to continue its current strengthening trend. Consider the chart of the rand against the US dollar:

For the past few months, we have been drawing you attention to the fact that the rand/US$ chart has been operating in a classical “triangle” and that sooner or later that formation would be broken, either on the upside or the downside, indicating the future direction.

It now appears that the rand has broken out of the triangle on the downside – which means it is strengthening and should continue to strengthen. There are many possible reasons for this, including:

1. A resurgence of  risk-on sentiment in international markets as bullish investors find reasons to be optimistic about the progress of US interest rates.
2. Optimism that the local elections will soon result in a better, new administration of the South African economy.
3. That a possible sustained drop in the price of oil will mean lower outflows and reduced pressure on the rand.

As a private investor you should try to develop a clear and consistent opinion on the future of those major indicators which will impact on the JSE. These include the S&P500, the price of oil and the rand/US dollar exchange rate.

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PDSNET ARTICLES - FEBRUARY 2020

Corona Correction Part II

Since our article “The Corona Correction” at the end of January 2020, the disease has progressed significantly, spreading to Europe and particularly to Italy where 10 cities have been quarantined and there are now 1146 confirmed cases.
As a private investor, you need to consider just how serious this pandemic is likely to become and exactly how much impact

Silver Ready to Go

An article by one of our customers, Koot Jordaan:
At the moment, the JSE is not a good place to be, despite all the bargains. Nobody is bargain hunting in ANC country lately. The only sectors that are booming are gold and PGM’s, due to the extraordinary performance of palladium. These are out of the starting blocks already, but silver, another precious metal, is just getting ready

Grit

Private investors in 2020 are faced with a domestic economy that is performing badly. South Africa is missing out on the world-wide boom in commodities because of our penchant for “shooting ourselves in the foot” economically.
In this environment it is quite natural for investors to seek solid safe investments that offer a decent return – preferably in a hard currency.
One

The Future of Inflation

Throughout the world, especially the first world, inflation is subdued. In the G7 countries, inflation remains stubbornly under 2% despite the efforts of central bankers. At the same time, in most first world economies, unemployment rates have fallen below the level that most economists consider to be “full employment”. Central banks world-wide are all focused on getting inflation back above 2%

A Story About Focus

The sale of CNA by Edcon, as part of its rationalisation and re-focus, is long overdue. There has really never been a good reason for Edcon to own CNA because there are no synergies between the two businesses. Edcon is in the clothing and fashion business – what has that got to do with what CNA does?
CNA itself seems to us to be completely defocused. What business is it in? Do they sell stationary? Because, if they

The Rebosis Saucer

Rebosis (REB), the first substantially black-owned real estate investment trust (REIT) on the JSE, over-extended itself and ended up with a loan to value ratio (LTV) of over 64%. Any REIT with an LTV above 40% is considered too highly geared, especially in an economy like South Africa’s that is in difficulties. It has had to retreat from its R1,2bn investment in New Frontier in the UK for a miserable R700m – and blamed