Taking Stock - Optimism about a vaccine.

In todays taking stock, we discuss the optimism about a vaccine, expectations of more monetary stimulus from the US and signs of a solid rebound in China drive risk buying.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

 

The Johannesburg All-Share index firmed 0.73% yesterday, while the Top-40 index closed up 0.74%. The All Share closed at 57,510 index points. Gold shares gained 7%, with Gold Fields up 6.68% and Harmony Gold 6.53% firmer. Yesterday, the government asked for a court hearing over a wage dispute with public sector trade unions to be postponed to 2021. Unions took the government to court after officials said the state could not afford to pay salary increases that were due to come into force in April 2020. The Absa Purchasing Managers' Index (PMI) also showed a slower local economic recovery, with new sales dropping in November.

 

 

EUROPEAN MARKET COMMENTARY

 

European stocks closed higher on Tuesday, starting off the last month of the year on a positive note. The pan-European Stoxx 600 closed up by 0.8%, with basic resources adding 3.6% to lead gains as almost all sectors and major bourses advanced. Health care stocks edged 0.2% lower. On the data front, euro zone inflation remained in negative territory for the fourth consecutive month in November, strengthening the case for further stimulus from the European Central Bank in December.

 

 

US MARKET COMMENTARY

 

US stocks jumped on Tuesday with the S&P 500 hitting a new record, as the market’s historic rally extended to December. Apple jumped 3.1% to lead the 30-stock Dow higher. Communication services and financials were the best-performing sectors in the S&P 500, rising at least 1.6% each. Sentiment got a lift after a group of lawmakers unveiled a $908 billion stimulus plan, which includes more than $200 billion in Paycheck Protection Program small business loans.

 

 

ASIAN MARKET COMMENTARY

 

Stocks in Asia were mixed this morning after major indices on Wall Street surged to record highs overnight. Australia’s economy expanded 3.3% quarter-on-quarter in September, according to data released by the Australian Bureau of Statistics. That beat expectations for a 2.6% rise by economists in a Reuters poll and followed a 7% quarter-on-quarter contraction from June. Hong Kong’s Hang Seng index shed around 0.32% in early trade. Trading of Xiaomi shares in Hong Kong was suspended this morning. Reuters reported that the Chinese smartphone maker has raised $3.91 billion as part of a deal that includes the largest top-up placement in Hong Kong, citing a term sheet.

 

 

CURRENCY MARKET COMMENTARY

 

The rand rallied yesterday, recouping most of the previous session as hopes of a coronavirus vaccine and signs of economic recovery around the world kept investors interested in risk assets. At the close the rand was 1.47% firmer at R15.25 per dollar. The rand's gains matched advances by fellow high-yield, emerging market currencies, with the Brazilian real and the Mexican peso both posting 1% gains. Along with optimism about a vaccine, expectations of more monetary stimulus from the United States and signs of a solid rebound in China have driven risk buying, although South Africa's specific growth challenges have tempered inflows.

 

 

COMMODITIES MARKET COMMENTARY

 

Gold prices edged lower this morning on growing progress over a coronavirus vaccine to aid a swift global economic recovery, with investors eyeing the possibility for further US stimulus. Oil prices extended losses today, hit by a surprise build in oil inventories in the United States and as OPEC and its allies left markets in limbo by delaying a formal meeting to decide whether to increase output in January. Industry data from the American Petroleum Institute showed US crude inventories rose by 4.1 million barrels last week, compared with analysts’ expectations in a Reuters poll for a draw of 2.4 million barrels.

LOCAL COMPANIES

Redefine (RDF) +1.3%

The JSE-listed diversified landlord swung to a loss of R16.6Bn, larger than its R13.7Bn market capitalization for the full-year end-August, and deferred its distribution decision for the year until February as the property sector battles with the fallout of the pandemic. The group is considering distribution options in an attempt to preserve cash and its REIT status, which entails paying out 75% of distributable income. Should the group fail to make a pay-out, it could suffer a R420 million tax hit. The landlord’s slipped 0.1% to R8.78Bn, with distributable income per share fell 49% to R51.5 cents. The group’s properties value fell by R7.2Bn, due to the economic impact of the COVID-19 pandemic.

 

Nampak (NPK) -5.8%

The manufacturer of metal, plastic and paper packing posted a R4.3Bn loss for the year, mainly due to R4Bn impairments relating to Bevcan Nigeria, Bevcan Angola, Plastics South Africa and DivFood assets. The group’s trading profit tumbled 56% to R682 million, while reporting an operating loss of R283 million from a R402 million profit previously, as economic activity grinded to a halt amid the global pandemic. CEO Erik Smuts: “2020 proved to be a challenging year across all geographies for Nampak as the COVID-19 pandemic significantly reduced economic activity in the markets where we operate”. Group revenue was 23% lower to R11.27Bn, with its headline loss per share weakening further to 88 cents from the 19 cents loss in the prior year.

 

INTERNATIONAL COMPANIES

Salesforce (CRM) -1.8%

The US cloud-based software company, which provides CRM services and other customer service applications, released Q3 earnings after the bell on Wall Street, which topped exceptions. Group revenue jumped 20% to $5.42Bn, beating analysts’ forecasts of $5.25Bn, as EPS came in at $1.15 versus the 75 cents pencilled in. However, the biggest news on the day was, the formal announcement of its acquisition of workplace communications company Slack, for $27.7Bn enterprise value, through a combination of cash and stock. The deal is the biggest yet for the group, and will take them head-to-head with Microsoft.

 

Bank of Nova Scotia (BNS) +2.9%

The third largest bank in Canada by deposits, commonly known as Scotiabank and listings on both the Toronto and New York Stock Exchanges, topped analysts’ Q4 expectations on Tuesday as the group set aside less provision for defaulting loans. The lender posted net income was $1.9Bn, compared to $2.3Bn a year earlier, with adjusted EPS of $1.45 well ahead of the $1.22 per share expected. CEO Brian Porter: "As we look forward to 2021, we will continue to put customers first and we remain cautiously optimistic that better times lie ahead as we continue to grow our presence as a leading bank in the Americas”. The banking group generated $7.5Bn in revenue, down from nearly $8Bn in the previous year.

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