Taking Stock - COVID-19 vaccines.

In todays taking stock, we look at how markets are caught between rising global infections and COVID-19 vaccines.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

 

Local stocks across all sectors fell, as the optimism stemming from progress with new coronavirus vaccines wavered. In what was a broad-based slump, the benchmark All-Share index lost 0.99% (now at 56,754 index points) losing all the gains of last eight sessions. The blue-chip Top 40 index closed down 1.03%. The bank index, which has led most of the market rally this month and had gained almost 30% in November, lost 0.9%. It is down almost 4% this week. The drop was led by Investec whose shares nosedived 6% even as the company bucked a trend among rivals and declared dividend. South Africa's central bank left its main lending rate unchanged at 3.50% on Thursday on moderate consumer inflation outlook and uncertainty over the trajectory of coronavirus infections.

 

 

EUROPEAN MARKET COMMENTARY

 

European stocks closed lower Thursday as a rally prompted by positive vaccine news started to peter out amid renewed fears of shutdowns due to rising coronavirus cases. The pan-European Stoxx 600 closed down by 0.7%, with travel and leisure stocks dropping 1.7% to lead losses as almost all sectors and major bourses slid into negative territory. European Central Bank (ECB) President Christine Lagarde on Thursday cautioned that euro area inflation is likely to remain negative into early 2021 as fresh economic shutdowns sweep through the continent. Lagarde also warned policymakers in Brussels of the potential damage that would be caused to the bloc’s economy should they fail to implement its historic stimulus plan, after Hungary and Poland vetoed the agreement on Monday.

 

 

US MARKET COMMENTARY

 

US stocks closed slightly higher on Thursday as traders increased their exposure to major tech names amid a rising number of coronavirus cases. Netflix and Amazon gained 0.6% and 0.4%, respectively. Alphabet rose 1%, and Microsoft closed higher by 0.6%. Apple rose 0.5% and Facebook ended the day up 0.4%. Stocks also got a boost after Senate Minority Leader Chuck Schumer, D-NY, said Majority Leader Mitch McConnell, R-KY, had agreed to resume negotiations on new fiscal stimulus.

 

 

ASIAN MARKET COMMENTARY

 

Asian markets traded mixed this morning as investors remained cautious over the short-term economic impact of the coronavirus as cases around the world continue to rise. Australia’s benchmark ASX 200 reversed earlier losses to climb 0.18%, with the heavily-weighted financials subindex up 0.27%. Materials and energy sectors still struggled for gains. Data from Japan showed core consumer prices fell in October at their fastest pace annually in nearly a decade, raising deflation fears in an economy that is still grappling with the pandemic. The country’s factory activity decline also sped up in November.

 

 

CURRENCY MARKET COMMENTARY

 

The rand weakened on Thursday as the central bank's decision to hold rates gave scant support and as traders awaited a sovereign rating review on Friday. Eventually, the rand closed the day 0.35% firmer at R15.41 against the dollar. Traders and analysts expect today's ratings review by Moody's and S&P's to be an important trigger for the rand. Both firms already rate the country's debt at sub investment, but S&P has the country on a stable outlook. Moody's and Fitch already have South Africa on negative outlooks. Should S&P bypass an outlook change and move straight to a downgrade, the rand could suffer some steep losses, analysts said.

 

 

COMMODITIES MARKET COMMENTARY

 

Gold prices fell this morning, weighed by uncertainty over more US stimulus measures after Treasury Secretary Steven Mnuchin said key pandemic lending programs at the Federal Reserve would expire by the end of the year. In a letter to Fed Chair Jerome Powell, Mnuchin said the $455 billion allocated to Treasury under the CARES Act last spring, which supports Fed's lending to businesses, non-profits and local governments, should be instead available for Congress to reallocate. Oil prices slipped today, dropping for a second day as concerns mounted about the hit to demand from the surge in COVID-19 infections forcing new lockdowns, but prices were supported by signs of movement on a stimulus deal in Washington.

LOCAL COMPANIES

Woolworths (WHL) -4.0%

The food and fashion retailer said on Thursday that group sales for the first 20 weeks of the financial year, slipping 2% due to lower footfall in malls and unplanned store closures. The retailer said the shift in work-from-home, has reduced demand for formalwear and slower lunchtime sales. “However, whilst the National State of Disaster remains in place, economic recovery is slow and consumer confidence remains low,” the group said. The group’s food division remains resilient with same-store sales growth of 9% during the period. The retailer’s Australia operations, David Jones reported a same-store sales decline of 14.6%, and in the State of Victoria, where lockdown measures were reintroduced during the period, total sales fell 76%, as the country is battling a second wave of infections.

 

Life Healthcare (LHC) -0.9%

The second-biggest private hospital operator listed on the JSE said the sector was not spared from the economic impact of the COVID-19 pandemic, as patient volumes tumbled. The group estimates the pandemic led to an R2.3Bn loss in revenue in its Southern Africa operations. “While there is still a high degree of uncertainty regarding the future progression of the pandemic, the Group is pleased with its response to the challenges that arose during H2 FY2020 and we are confident that the lessons learned will enable us to respond effectively to future COVID-19-related challenges” the group said in a statement. The healthcare group lost 1.1% in revenue for the full-year, with normalized EBITDA dropping 24.1% to R4.3Bn due to additional virus-related health and safety costs and lower activity levels, leading to negative operational leverage.

INTERNATIONAL COMPANIES

Macy’s (M) +2.1%

The US retailer’s same-store sales tumbled more than 20%, as consumers are spending less on clothes and accessories at department stores during the pandemic, opting for online sales and home delivery. Digital sales grew a respectable 27%, penetrating 38% of total owned comparable sales. The retailer however, managed to top earnings and revenue expectations, but the share price remained under pressure. The group generated $3.99Bn revenue. 22.9% lower than the previous year, and slightly more than the $3.86Bn consensus. The retailer lost 19 cents per share during the quarter, beating the 79 cents loss analysts predicted.

 

Nvidia (NVDA) +0.1%

The maker of the GeForce graphics card, reported expectation beating results for the fourth-quarter, but warned revenue from its data centre segment is expected to decline in the current quarter. EPS was reported as $2.91 versus the $2.57 expected by Wall Street, with group revenue coming in at $4.73Bn, 57% higher and ahead of the $4.41Bn estimates. The group’s compute and networking segment, grew 146% from a year ago to $1.94Bn, and its graphics segment, jumped 25% from last year to $2.79Bn.

 

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