Taking Stock - European and US markets began Q2 on a positive note

European and US stock markets began the second half of 2021 on a positive note as investors anticipated an economic recovery.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Stocks on the Johannesburg Stock Exchange (JSE) clawed back losses seen since Monday when South Africa went into new lockdown restrictions to curb the spread of the third wave of coronavirus. However, banks or financials that are dependent on the local economy, continue to be subdued, hinting that investors are still worried about the impact of lockdown restrictions. The benchmark All-Share index closed up 0.46% to 66,556 points, while the blue-chip Top 40 index ended 0.52% to 60,477 points.

 

EUROPEAN MARKET COMMENTARY

European stock markets climbed on Thursday, beginning the second half of 2021 on a positive note as investors anticipated the continent’s economic recovery. The pan-European Stoxx 600 ended the session up by 0.6%, with oil and gas shares adding 2.1% while travel and leisure stocks rose 1.9% to lead the gains. Most major bourses finished in positive territory. Euro zone manufacturing activity grew at its fastest pace on record in June, according to IHS Markit’s final manufacturing PMI (purchasing managers’ index) on Thursday.

 

US MARKET COMMENTARY

The S&P 500 rose on Thursday and hit another record high as Wall Street kicked off the second half of 2021 on a positive note. The rise for stocks was widespread, with energy stocks leading the way as West Texas Intermediate crude rose above $75 per barrel. Shares of Chevron rose 1.4%, making the stock one of the best performers in the Dow. A stretch of strong economic news continued on Thursday as weekly initial jobless claims came in at 364,000, setting a pandemic-era low.

 

ASIAN MARKET COMMENTARY

Asia-Pacific stocks were mixed this morning as investors look ahead to a closely-watched US jobs report set to be released later today. Economists expect nonfarm payrolls grew by 706,000 jobs in June and the unemployment rate fell to 5.6% from 5.8%, according to Dow Jones. Mainland Chinese stocks were among the biggest losers regionally as the Shanghai composite fell around 1.6% while the Shenzhen component dropped 1.845%. Hong Kong’s Hang Seng index declined 1.77%.

 

CURRENCY MARKET COMMENTARY

The rand slumped on Thursday, as concerns about rising coronavirus infections and fresh lockdowns subdued risk appetite globally, with markets also on edge ahead of US jobs data seen as crucial to the Federal Reserve's policy outlook. At the close, the rand was 1.08% softer versus the dollar as it traded around R14.43. South Africa, the worst-hit on the African continent in terms of recorded cases and deaths, tightened its restrictions on Sunday.

 

COMMODITIES MARKET COMMENTARY

Gold prices held in a tight range earlier today as investors stayed away from making big bets ahead of the US nonfarm payrolls data that could sway Federal Reserve's monetary policy stance. Oil prices held steady this morning after OPEC+ ministers delayed a meeting on output policy as the United Arab Emirates balked at a plan to add back 2 million barrels per day (bpd) in the second half of the year.

LOCAL COMPANIES

 

Sasol (SOL) +3.1%

Sasol chief financial officer Paul Victor will step down after more than two decades with the fuel and chemical maker. He will be succeeded by Royal Bafokeng Platinum’s CFO Hanré Rossouw, Sasol said Thursday in a statement. Victor has agreed to remain with the company until June 30, 2022, when it reports annual results. Victor held the role of CFO through a turbulent time for Sasol, as the company’s shares were battered by oil price volatility and it struggled to contain cost overruns at the Lake Charles Chemicals Project in Louisiana. Ballooning debt forced the company to consider a $2 billion rights offer and accelerate a disposal of global assets. Rossouw, who will join Sasol in April, has restructured RBPlat’s balance sheet by refinancing debt, introducing a new capital allocation framework and a new dividend policy, Sasol Chairman Sipho Nkosi said in the statement. Rossouw has also held roles as portfolio manager at Investec Asset Management and CFO of Xstrata Alloys.

 

Blue Label Telecoms (BLU) +12.4%

Cell C is in advanced talks with FirstRand’s unit Rand Merchant Bank and Investec to provide the South African wireless carrier with about R4 billion of fresh capital, according to people familiar with the matter. The country’s fourth-largest mobile-phone provider, partly owned by Johannesburg-listed Blue Label Telecoms, is nearing the end of a recapitalisation plan to pay down debt, said the people, who asked not to be identified as the information is still private. Deals have been concluded with former creditors to pave the way for new funding, they said. Cell C has been struggling under a debt burden of about R10 billion, while its customer growth has come under pressure due to South Africa’s weak economic outlook and the dominance of two larger companies, MTN Group and Vodacom Group. Cell C said its recapitalisation was in progress and at a sensitive stage, with details to follow when it is finalised. “RMB can confirm that we are in discussions with Cell C and its shareholders regarding financing,” a representative for the lender said. “Client confidentiality precludes us from sharing any details.” Investec declined to comment. A previous plan for no 3 wireless operator Telkom SA SOC to combine its mobile operations with that of Cell C fell apart in 2019 and the recapitalisation was approved last year. Cell C previously restructured its finances in 2016, when Blue Label took a 45% stake.

 

INTERNATIONAL COMPANIES

 

General Motors’ (GM) -0.1%

General Motors’ US vehicle sales during the second quarter were slightly lower than analyst expectations as an ongoing shortage of semiconductor chips impacted vehicle production and dealer inventories. The Detroit automaker on Thursday reported sales of 688,236 vehicles during the second quarter, up 39.7% from a year earlier when the coronavirus pandemic caused Americans to shelter in place and temporarily closed auto dealerships. Analysts expected GM’s sales to increase by between roughly 40% and 43%, according to forecasts from auto research firms Edmunds and Cox Automotive. “Consumer demand for vehicles is also strong, but constrained by very tight inventories. We expect continued high demand in the second half of this year and into 2022,” said Elaine Buckberg, GM chief economist, in a statement. GM said it ended the second quarter with only 211,974 vehicles in inventory, a 37% decline from 334,628 at the end of the first quarter. Before the pandemic impacting vehicle production, the automaker’s inventory levels were about 616,000 units to end 2019. GM is among the first major automakers to report second-quarter sales on Thursday. Overall, analysts estimate automakers sold about 4.5 million vehicles in the US in the second quarter — a 52% to 53% increase compared with the second quarter of 2020.

 

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Sasfin Research, Sasfin Wealth

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