Taking Stock -South Africa’s Unemployment Rate Spikes.

South Africa’s Unemployment Rate Spikes to a Record High of 30.8% in Q3.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

The market was dragged lower by local data releases, with South Africa’s unemployment rate at a record high of 30.8% in the third quarter and mining output contracting 2.8% in September. These figures hurt stocks, with the benchmark All Share Index ending the day 1% lower (at 57,031 index points) while the blue-chip Top 40 Index closed down 0.85%. Shares in banks, whose lending businesses suffer when borrowers lose their jobs, fell from highs seen earlier in the week. The banking index was down 1.8%. Investors are looking for clues about the health of Africa’s most industrialised economy, which is forecast to contract by at least 7% this year because of the pandemic.

 

EUROPEAN MARKET COMMENTARY

European stocks ended Thursday’s session in the red, retreating from some of the gains seen earlier in the week as initial positive sentiment around a coronavirus vaccine started to fade. It comes as a resurgence in COVID-19 cases in the continent shook investor sentiment. France’s total number of cases rose to 1.86 million on Wednesday, overtaking Russia to become the worst-affected country in Europe. Meanwhile, preliminary figures showed the UK economy grew by a record 15.5% in the third quarter, slightly lower than the 15.8% expansion expected by economists. UK GDP remains 9.7% below its December 2019 level.

 

US MARKET COMMENTARY

US stocks fell on Thursday as an increasing number of US coronavirus cases raised concerns over the health of the economy heading into year-end. The major averages turned sharply lower after Federal Reserve Chairman Jerome Powell said the US economic outlook remained uncertain even after this week’s positive vaccine news. Travel and bank stocks were among the biggest losers yesterday. United Airlines fell more than 4%, while Carnival dropped 7.9%. JPMorgan Chase, Citigroup and Wells Fargo were all down more than 1%. On the data front, initial weekly jobless claims fell last week to 709,000 from 757,000 in the prior week.

 

ASIAN MARKET COMMENTARY

Stocks in Asia fell this morning, following the selloffs in the United States and Europe as investors feared the economic impact of an accelerating rise in coronavirus infections. Chinese blue-chips led the losses, falling 1.21%. Australian shares lost 0.47% and the Hang Seng was 0.55% lower. Shares of Chinese tech juggernaut Tencent traded higher in early trade today before giving up some gains. It came after the firm announced on Thursday that its quarterly profit rose more than 80% from last year.

 

 

 

CURRENCY MARKET COMMENTARY

The rand was mostly unchanged against the dollar on Thursday as global market optimism over a potential COVID-19 vaccine wavered on concerns over logistics, while the country’s record unemployment rate weighed on stocks. The rand traded at R15.65 against the US dollar at the close, 0.12% weaker. The rand is seen as a proxy for emerging market risk and is highly susceptible to swings in global market sentiment. The local currency was trading around the R15.67 this morning.

 

COMMODITIES MARKET COMMENTARY

Gold prices were little changed today, as fears of an economic impact due to a surge in global cases of COVID-19 countered optimism from the developments in a potential vaccine. Oil prices fell in early trade this morning as a spike in the number of COVID-19 infections raised fears for the global economy and near-term fuel demand, but remained on track for a second straight weekly gain amid hopes for a vaccine. US government data also added to pressure, as crude inventories rose by 4.3 million barrels last week, compared with an expected fall of 913,000 barrels.

LOCAL COMPANIES

Mediclinic (MEI) +0.5%

The South African private hospital group posted an 83% decline in headline earnings per share on Thursday to 2.4 pence from 14.2 pence in the comparable period previously. The group, which operates in Switzerland, South Africa and the UAE, said its SA operations were "significantly impacted" by the COVID-19 related hard lockdown. The nationwide restrictions lead to the suspension of elective procedures and temporary closure standalone day case clinics, as the group focused all of its available resources on the pandemic.  “The Group remains cautious on second-half performance in the midst of uncertainty as to the full impact of the continuing pandemic and its economic aftermath,” it said in a statement.

 

Gold Fields (GFI) +0.7%

The gold miner says the third quarter was marked as a recovery period for its operations that were impacted by the global pandemic, as the group continues to settle into the ‘new’ normal created by COVID-19 crisis. Total production for the quarter increased 7% YoY and 1% QoQ to 537,000oz. 63,000oz featured from South Deep, which the group said is “generating meaningful cashflow at current prices”, after being one of the most affected assets during the lockdowns. The miner is slightly ahead of schedule in the construction of its 450,000oz/year, $860 million Salares Norte project in Chile, having spent $78 million on the project to date.

INTERNATIONAL COMPANIES

Tencent (007) +3.0%

The Chinese tech conglomerate posted strong Q3 earnings with revenue jumping 29% to 125.5Bn yuan ($18.9Bn) compared to the 97.2Bn yuan ($14.7Bn) in the same period in 2019. Net profit surged 85% to 38.9Bn yuan ($5.88Bn), with the group attributing it to better cost efficiency and robust demand for its gaming operations. Online game revenue increased 45% YoY to 41.4Bn yuan ($6.26Bn), with domestic mobile games such as Peacekeeper Elite and Honor of Kings exceeded 100 million average daily users in the first ten months of 2020.

 

Disney (DIS) -1.7%

The entertainment conglomerate reported Q4 results after the bell on Wall Street, showing lower losses than expected by analysts, sending the share price higher in after-hours trading. As the global pandemic hammered the group’s theme parks and studio entertainment divisions, its online streaming business offered a bright spot to investors as it reached 73.7 million paid subscribers as of 3 October. CEO Bob Chapek: “Even with the disruption caused by COVID-19, we’ve been able to effectively manage our businesses while also taking bold, deliberate steps to position our company for greater long-term growth”. The group reported a 20 cent per share loss versus the 71 cents expected consensus, while generating $14.71Bn, well ahead of the 14.2Bn pencilled in.

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