Taking Stock - UK announces largest peacetime borrowing level ever.

In todays taking stock, we discuss how the UK announced its largest peacetime borrowing level ever.

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MARKET COMMENTARY

SOUTH AFRICA

Local stocks had a largely mixed day, with the two main indices swinging between positive and negative territories and ending broadly stable amid stronger local inflation data and rising global coronavirus cases. The benchmark All Share index closed down 0.03%. The blue-chip Top 40 index ended 0.2% lower. South Africa's consumer price index (CPI) rose 3.3% in annual terms, versus analysts' expectations for a 3.1% rise and a 3.0% reading in September, well within the central bank's target of 3-6%.

 

 

EUROPE

European stocks closed little changed on Wednesday, pausing for breath after rallying on growing political certainty in the US and positive coronavirus vaccine news. The pan-European Stoxx 600 index provisionally finished the session 0.06% below the flatline. Oil and gas stocks slid 1.26% to lead losses while telecoms gained 1.08%. The UK announced its largest peacetime borrowing level ever as the coronavirus pandemic is forecast to cause the largest plunge in economic output for 300 years. The British economy is forecast to contract by 11.3% in 2020.

 

 

US

The Dow Jones fell yesterday, taking a breather after reaching a significant milestone, while traders pored over disappointing unemployment data. The Labor Department said that 778,000 people filed for unemployment benefits for the first time last week. Economists polled by Dow Jones expected initial jobless claims to come in at 733,000. The S&P 500 dipped 0.2 after reaching an all-time closing high in the previous session, while the Nasdaq Composite outperformed, rising 0.5%. The Federal Reserve released the minutes from its meeting earlier this month. That summary showed Fed officials discussing ways of providing more accommodation to the economy as the recovery from the coronavirus pandemic continues.

 

 

ASIA

Stocks in Asia struggled for direction this morning as investors reacted to minutes released overnight from the US Federal Reserve’s November meeting. Mainland Chinese stocks were lower in morning trade. The summary of the Fed meeting from earlier this month indicated that US central bank officials discussed ways of getting more money into the economy, which is still recovering from the coronavirus pandemic.

 

 

CURRENCIES

The rand initially dipped on Wednesday, erasing gains earlier in the session, after data showed consumer price inflation in October rose, but not by enough to dampen expectations of further monetary policy easing. At the close, the rand eventually strengthened slightly to R15.12 versus the US dollar, 0.52% firmer than its previous close. Demand for the rand and domestic bonds this year has largely been supported by the elevated yield on offer due to high interest rates compared with developed markets. Lower rates would diminish the currency's carry-trade appeal.

 

 

COMMODITIES

Gold prices rose this morning as grim US jobs data and worries over surging COVID-19 cases worldwide cast doubts over a quick economic recovery and bolstered the metal's safe-haven appeal. US oil rose for a fifth day this morning as a surprise drop in crude inventories extended a rally driven by hopes that vaccines would end the coronavirus pandemic and revive fuel demand. Brent was up by around 20 cents, or 0.4%, at $48.81 a barrel, after rising around 1.6% in the previous session.

LOCAL COMPANIES

Arrowhead (AHA) +1.1%

The property group, which owns a diversified range of properties including offices, retail centres and industrial sites, said it disposed of 78 assets for around R1.7Bn at a 7% discount to book value, as the group moved to shore up its balance sheet. The landlord, which has a dual A-share and B-share structure, declared a dividend of 115.45 cents per A-share, which is 3.5% higher than previously, while for its B-share, the group declared a 52% lower dividend of 32.99 cents. CEO Mark Kaplan: “We are pleased with our results, which were better than expected considering the really tough year that South Africa and the world has had economically, due to Covid-19”. The landlord retained 84% of its tenants during the period, with vacancies increasing to 8.6% from 7.5% previously.

 

Lewis (LEW) +18.5%

The JSE-listed furniture and appliance retailer’s shares jumped more than 18% on Wednesday after the group announced a 9.9% jump in interim headline earnings and opted to increase its dividend by 10.8% to 133 cents. The retailer said that despite the impact of the pandemic, which is estimated to be about R360 million in lost sales, they recorded a strong post-lockdown recovery giving it confidence for the second half of the financial year. Revenue decreased 1.6% to R3Bn, however profit increased 6.7% to R182.6 million, as lower transport, occupancy, administration costs and marketing spend helped to improve the bottom-line. CEO John Enslin: “I believe things will become tougher in 2021. This is because the government stimulus and special grants will stop at the end of January”.

INTERNATIONAL COMPANIES

Petra Diamonds (PDL) +9%

The London-listed diamond miner received a much-needed cash boost after selling five rare blue diamonds, known as the Letlapa Tala collection, from its flagship Cullinan mine near Pretoria for $40.36 million (R616 million) following a tender proses. The deeply indebted miner, is undertaking a major debt restructuring that will entail shareholders reducing their stake in the company to just 9%, and the current windfall will not change its plans. The diamonds weigh 85.6 carats, and was sold as a collection to a partnership between De Beers and Diacore, making each carat worth $472,000. CEO Richard Duffy: “The result of this special tender affirms the very high value placed on blue diamonds, which are undoubtedly one of nature’s rarest treasures”.

 

Deere & Co (DE) -1.9%

The world’s largest agricultural equipment manufacturer and maker of the legendary green tractors, reported Q4 profit and sales that were well ahead of Wall Street expectations on Wednesday, and provided shareholders with a positive outlook. The group’s net income increased to $757 million, or $2.39 a share, from $722 million, or $2.27 a share, in the prior year, smashing the $1.49 consensus estimate. Overall, revenue slipped 1.7% to $9.73Bn, topping analysts forecast of $8.59Bn. CEO John May: "Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment”.

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