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South Africa Market Review
South African markets closed in the red yesterday, tracking losses in global equities amid concerns over political turmoil in Greece and tightened Chinese lending rules. Royal Bafokeng Platinum, Aquarius Platinum and Lonmin dropped 4.7%, 4.0% and 3.4%, respectively. Impala Platinum Holdings fell 0.7%, after the company indicated that its headline EPS in 1Q15 is expected to be 20.0% lower from the same period prior year. Kumba Iron Ore declined 3.1%. The company revealed that it would cut capital expenditure, jobs and other costs to improve its performance. On the upside, Harmony Gold Mining, Sibanye Gold and Gold Fields gained 6.6%, 4.6% and 3.6%, respectively, in line with an increase in gold prices. The JSE All Share Index dropped 2.1% to close at 48,556.55.
UK Market Review
UK markets finished lower yesterday, amid weakness in retail sector stocks and concerns over political uncertainty in Greece. Tesco tumbled 6.6%, after the company issued its fourth profit warning this year and cautioned of lower profits for FY15. Wm Morrison Supermarkets and J Sainsbury fell 4.4% and 1.8%, respectively. Coca-Cola HBC dropped 5.3%, as concerns regarding the firms operations in Greece and Russia emerged amid the nation’s economic problem. Separately, the company was order to pay legal penalties to Pepsi for a case related to similar designs of their glass bottles. Oil sector stocks, Royal Dutch Shell and Tullow Oil slipped 0.5% and 0.4%, respectively, despite a rebound in oil prices. The FTSE 100 Index declined 2.1% to close at 6,529.47.
US Market Review
US markets ended mostly lower yesterday, due to the implementation of tighter lending rules in China and the call for a snap presidential election in Greece. H&R Block fell 5.0%, after posting a wider-than-estimated loss in 2Q15. Citigroup tumbled 0.9%, after it revealed that it would incur legal and restructuring charges of $3.50bn in 4Q14, while Bank of America lost 0.6%, after it indicated that its 4Q14 trading revenue would decline. However, Diamond Offshore Drilling, Newfield Exploration and Denbury Resources surged 8.1%, 7.1% and 4.8%, respectively, amid a rebound in oil prices. The S&P 500 Index dropped marginally to settle at 2,059.82, while the DJIA Index fell 0.3% to close at 17,801.20. The NASDAQ Index climbed 0.5% to finish at 4,766.47.
Asia Market Review
Markets in Asia are trading lower this morning, after data showed that China’s consumer price inflation slowed to a five-year low in November. In Japan, JTEKT and Komatsu featured amongst top losers, declining 5% and 4.1%, respectively. Exporters, Mazda Motor, Sharp and Honda Motor slipped 3.5%, 3.2% and 2.9%, respectively, as the Japanese yen strengthened. In Hong Kong, Tencent Holdings retreated 1.6%, after recent filings revealed that the company’s Chairman, Pony Ma, had reduced his holding in the company. In South Korea, Posco and Samsung Electronics fell 1.4% and 0.7%, respectively. The Nikkei 225 Index is trading 2.2% lower at 17,429.83, while the Kospi Index is trading 1.2% lower at 1,948.21. The Hang Seng Index is trading 0.2% in negative territory at 23,442.00.
At 06:00 SAST today, Brent crude oil fell 0.5% to trade at $65.60/bl. A report released by the American Petroleum Institute showed that crude inventories in the US expanded by 4.40mn bls last week. Yesterday, Brent crude oil rose 0.4% to settle at $65.95/bl, rebounding slightly from the previous session’s multi-year low.
Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.6% to $3.61/bushel.
At 06:00 SAST today, gold prices remained unchanged to trade at $1,231.29/oz. Yesterday, gold gained 2.3% to close at $1,231.06/oz, as losses in global equity markets boosted demand for gold as the safe haven asset.
Yesterday, copper rose 1.2% to close at $6,535.50/mt. Aluminium closed 0.3% higher at $1,956.00/mt.
Yesterday, the South African rand strengthened against the US dollar. Meanwhile, data showed that the pace of manufacturing production in South Africa eased more than expected in October. Separately, the NFIB’s survey released in the US showed that optimism among small firms in the US improved more than anticipated in November. Market participants will eye today’s South African consumer price inflation and retail sales data for further direction to the South African rand against the majors.
The yield on benchmark government bonds rose yesterday. The yield on 2015 bond rose to 6.34% while that for the longer-dated 2026 issue advanced to 7.81%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.4473, while the euro and the British pound are are trading flat at R14.1762 and at R17.9424, respectively. Data released in China earlier today revealed that the annual consumer price inflation in the country slowed unexpectedly in November.
Yesterday, the euro and the British pound weakened against the South African rand. The NIESR GDP estimate released in the UK showed that the pace of economic growth for three months ended November remained unchanged compared with the previous three months.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.2382, while it has remained unchanged against the British pound to trade at GBP0.7901.
The seasonally adjusted manufacturing production index in South Africa rose 0.5%, on a monthly basis, in October, compared with a revised advance of 4.2% posted in September.
On an annual basis, in October, mining production in South Africa dropped unexpectedly by 1.1%, compared with a revised 5.0% rise reported in September.
Gold production in South Africa slid 8.9%, in October, on an annual basis, following a revised drop of 0.2% posted in September.
The NIESR estimated gross domestic product (GDP) in the UK advanced 0.7%, on a monthly basis, in the September-November 2014 period, following a similar rise registered in the previous three month period.
Manufacturing production in the UK declined unexpectedly by 0.7%, on a monthly basis, in October, compared with a revised advance of 0.6% recorded in September.
In October, industrial production in the UK fell surprisingly by 0.1%, on a monthly basis, following a 0.6% rise registered in September.
In October, the trade deficit in France fell to EUR4.61bn from a revised trade deficit of EUR4.72bn reported in September.
The seasonally adjusted trade surplus in Germany widened to EUR20.60bn in October from a revised trade surplus of EUR18.60bn posted in September.
On a quarterly basis, the seasonally adjusted labour costs in Germany climbed 0.2% in 3Q14, compared with a revised rise of 1.0% recorded in 2Q14.
A European Central Bank (ECB) Governing Council member, Jozef Makuch, revealed that at their meeting last week, an “overwhelming majority” of policymakers remained in favour of buying sovereign bonds in order to support the eurozone’s economy.
In November, the NFIB small business optimism index in the US rose to 98.10 from a reading of 96.10 posted in October.
On an annual basis, machine tool orders in Japan advanced 36.6% in November, following a rise of 30.8% registered in October.
In November, on a monthly basis, the Consumer Price Index in China dropped unexpectedly by 0.20%, compared with a flat reading posted in October.
Impala Platinum Holdings: The company, in its trading update, stated that its headline EPS and basic EPS for 1H15 are anticipated to be more than 20.0% lower than the comparable figures of $1.42 and $1.45 per share, respectively, posted in 1H14. The drop in the headline EPS and EPS is primarily due to lower production from Impala Rustenburg, industrial action and safety stoppages at Marula and the precautionary closure of the Bimha mine at Zimplats.
Anglo American: The mining company indicated that one of its key business target of achieving a 15.0% return on its capital by 2016 is unlikely to be met due to declining commodity prices. Additionally, it announced that it is considering the sale of a couple of coal assets and planning to cut down approximately 60,000 jobs by 2017.
Nedbank Group Limited: The company indicated that it has appointed Priya Naidoo to the Group Executive Committee with effect from 1 January 2015 and she would succeed John Bestbier, the Group Executive for Strategic Planning and Economics, on his scheduled retirement date of 30 June 2015. The company also stated that Mike Davis has been appointed as the Group Executive: Balance Sheet Management with effect from 1 January 2015.
Kumba Iron Ore Limited: The company announced that its Sishen mine continues to perform well against its operational plan and remains on track to increase production to 35.00mnt in 2014, 36.00mnt in 2015 and 37.00mnt from 2016. Its Kolomela mine’s life of mine (LoM) production capacity has been increased to 11.00mnt pa from 2015. Furthermore, the company revealed that it would cut capital expenditure, jobs and other costs to improve its performance amid falling commodity prices.
Attacq Limited: The company indicated that it would raise approximately R500.00mn through the issue of new ordinary shares in terms of a vendor consideration placing to partly fund the AWIC transaction as announced on 8 December 2014. The equity raise would be implemented through an accelerated book build process.
Eqstra Holdings Limited: The company announced that Mr. J Colling has been appointed as the CEO of Eqstra’s Contract Mining and Plant Rental division and executive committee member, effective 12 January 2015.
Hulamin expects ‘significantly higher’ earnings: Hulamin said in a revised trading statement that it will see significantly higher EPS and headline EPS for FY14.
Anglo in Papua New Guinea joint venture: Just days after saying it was pulling out of a copper project in Peru, Anglo American has agreed to form a joint venture in Papua New Guinea to explore for and possibly develop a copper and gold deposit.
Oil creates space for SAA rescue: Lower oil prices present embattled national carrier South African Airways (SAA) with more “wriggle room” to implement and afford a turnaround strategy, experts say.
Consumers ‘to spend more on food in festive season’: South African consumers will cut back on travel and socialising in favour of food purchases over the festive season as tough economic conditions force people to be more pragmatic in their spending habits, Deloitte’s Year-End Holiday Survey revealed on Tuesday.
Mugabe fires Deputy, to name new cabinet: Zimbabwean President, Robert Mugabe, has fired his long-time Deputy, Joice Mujuru, and several of her allies, two government sources said on Tuesday, in the latest sign of a power struggle among the ruling elite.
ANC urges Eskom to communicate better: The African National Congress (ANC) on Tuesday urged Eskom to communicate its load-shedding schedules more effectively to minimise inconvenience and disruptions to businesses and households.
UK and US
Autozone Inc.: The retailer of automotive parts, in its 1Q15 results, indicated that its net sales climbed to $2.26bn from $2.09bn posted in the same period earlier year. Its diluted net EPS stood at $7.27, better than market estimates of $7.16/share.
HD Supply Holdings: The company, in its 3Q15 results, stated that its net sales rose to $2.49bn from $2.27bn recorded in the similar period prior year. Its adjusted diluted EPS was registered at $0.55, better than market anticipations of $0.53/share. Additionally, the company indicated that its net sales in 4Q15 is expected to be in the range of $1.99bn to $2.07bn and adjusted diluted EPS is anticipated to be in the range of $0.07 to $0.12.
UTi Worldwide: The logistics company, in its 3Q15 results, revealed that its total revenue dropped to $1.08bn from $1.15bn reported in the corresponding period year ago. Its non-GAAP diluted loss per share was recorded at $0.08, worse than market expected non-GAAP diluted earnings of $0.06/share.
Conn’s Inc.: The electronics and appliance store chain, in its 3Q15 results, indicated that its total revenue climbed to $370.06mn from $310.88mn recorded in the same period previous year. Its diluted loss per share was registered at $0.08, compared with market expected diluted earnings of $0.68/share. Furthermore, the company stated that amid an ongoing review of strategic alternatives and the oversight initiatives being undertaken, it has decided to withdraw its earnings guidance for FY15. Separately, the company announced its CFO, Brian Taylor, has stepped down and Mark Haley has been appointed as the Interim CFO, effective immediately.
Analogic Corporation: The technology company, in its 1Q15 results, stated that its total net revenue rose to $118.32mn from $110.08mn posted in the corresponding period prior year. Its non-GAAP diluted EPS stood at $0.63, better than market estimates of $0.50/share.
The Pantry Inc.: The convenience store chain, in its FY14 results, revealed that its total revenue dropped to $7.55bn from $7.82bn recorded in the earlier year. However, its diluted EPS was reported at $0.57, compared with a loss of $0.13/share posted in the earlier year.
Mitcham Industries: The company, in its 3Q15 results, indicated that its total net revenue climbed to $22.91mn from $20.28mn recorded in the similar period preceding year. Its diluted net loss per share was posted at $0.03, worse than market expected diluted net earnings per share of $0.03.
Yum! Brands: The company indicated that it now estimates “mid-single-digit” EPS growth in FY14, compared to its previous forecast of 6.0% to 10.0% growth, citing weaker than expected recovery in its China division sales. The company also stated that it expects to deliver at least 10.0% EPS growth in FY15.
Tesla Motors: The company revealed that it would officially launch its retail presence today in Australia.
Gogo Inc.: The CEO of the company, Michael Small, stated that the company is aiming to win more contracts from around the globe following recent international wins with carriers Virgin Atlantic and Vietnam Airlines.
Tesco Plc: The grocer, in its trading update, indicated that its FY15 profit would not exceed GBP1.40bn, around 30.0% below previous estimates of around GBP1.94bn. The company has lowered its profit expectations for the fourth time this year, citing the cost of trying to recover from an accounting scandal and a drop in market share. The company stated that that in recent weeks it had taken steps to improve its customer offer, investing further in service, with more than 6,000 new staff in stores, increased product availability on key lines and invested in price.
Victrex Plc: The plastics manufacturer, in its FY14 results, announced that its revenue increased to GBP252.60mn from GBP221.90mn reported for the previous year. Its diluted EPS rose to 94.30p from 86.00p posted in the preceding year. The company stated that its FY15 has started well and although currency headwinds remain considerable, it now anticipates being able to fully cover the FX impact, reflecting its positive trading momentum and more recent exchange rates. With a continued focus on growth and efficiency, the company remains well placed for the year ahead.
AstraZeneca: The pharmaceutical company announced that its new drug, MOVENTIG, has been received marketing authorisation by the European Commission for the treatment of opioid-induced constipation in adult patients who have had an inadequate response to laxative.
Land Securities Group: The property company announced the sale of The Centre and Almondvale West Retail Park, Livingston to HSBC Alternative Investments Limited as part of its Club Deal programme for GBP224.10mn.
SOCO International: The oil explorer, in its evaluation of the Block 16-1 Te Giac Trang field offshore Vietnam, indicated that the field most likely contained up to 949.00mn bls, with recoverable estimated at up to 319.00mn bls. The evaluation also showed it could produce more than 100,000.00 Mb/d.
BG to sell liquefied natural gas pipeline for $5.00bn: BG Group has sold a gas pipeline built as part of the company’s liquefied natural gas project in northern Australia for $5.00bn to APA Group.
G4S and Serco won Whitehall work despite being ‘on probation’: Five government departments awarded G4S and Serco fresh work during a period in which Whitehall “gave the impression” that all business with the two outsourcing companies was on hold until the outcome of a review.
Investors tapped to fund gold fraud film: Two of the world’s toughest mining tycoons battle it out with a star geologist, a chancer and a dictator’s children for control of one of the world’s largest gold discoveries in the heart of the Indonesian jungle, until it is exposed as a huge fraud.
Green levies on household energy bills set almost to double: The annual costs imposed on average household energy bills to support the country’s drive to meet carbon-reduction targets are set almost to double from GBP115.00 to GBP215.00 by FY30, according to government advisers.
Russian billionaire to return $4.10mn Nobel medal to James Watson: Alisher Usmanov, the Russian billionaire, placed the winning $4.10m bid for James Watson’s Nobel Prize medal and will hand it back to the biologist.
Hungary and Russia confirm nuclear deal: Hungary awarded nuclear energy contracts worth at least EUR6.00bn to a Russian state owned company on Tuesday, formalising a contentious deal that critics say will bind the country’s energy supply to Moscow for decades.
Exxon sees N America as liquid fuels exporter: North America is likely to be a net exporter of liquid fuels in the next decade, as production grows while demand in the US and Canada stagnates, according to ExxonMobil, the world’s largest listed oil company.
Mitsui invests almost $1.00bn in Vale’s Mozambique coal projects: Mitsui has agreed to invest almost $1.00bn in Vale’s coal projects in Mozambique in a sign of Japan’s burgeoning interest in Africa’s natural resources.
US extends StanChart probation period by three years: The US has extended the period that Standard Chartered will be subject to intense scrutiny to ensure it complies with sanctions laws by three years, until FY17.
KPMG reports record revenues, but flags challenges in Asiaw: KPMG International has reported record revenues, spurred by growth across the accounting firm and rising demand for big data management, but it warned of economic challenges in certain Asian Pacific regions.
Big banks are giving up on their global ambitions: About 10 years ago Citigroup’s then Chief Executive, Chuck Prince, started his global apology tour, aimed at mending relationships with regulators and bolstering Citi’s reputation. Tokyo was the first stop.
JPMorgan faces $22.00bn capital hole under new Fed rules: JPMorgan Chase has a $22.00bn capital hole under new rules proposed by the Federal Reserve on Tuesday, a blow to a bank which has long boasted of a “fortress balance sheet”.
Senior Executives quit Woodford Funds: Two senior Executives of the investment company set up by well-known UK fund manager Neil Woodford have left the firm less than a year after its launch.
BES collapse could have been avoided, former Chief says: The Lisbon government could have prevented one of Europe’s largest financial failures by extending a bridging loan to the distressed Espírito Santo group, the head of the collapsed family business empire has claimed.
Honda extends Takata airbag safety probe worldwide: Honda is expanding its recall campaign to replace Takata-made airbags to an estimated 13.00mn vehicles worldwide after coming under increasing pressure from regulators.
BMW and Volkswagen make changes at the top: BMW and Volkswagen, two of the biggest names in German carmaking, announced shake-ups to their senior management on Tuesday.
Fraudsters’ robots to cost marketers $6.00bn: Marketers will lose $6.00bn next year to fraudsters who are using networks of robots to exploit the online advertising industry, according to the largest study to date of digital ad crime.
Bloomberg News replaces founding editor: Michael Bloomberg has hired John Micklethwait, Editor-in-Chief of the Economist, to take over all editorial operations at his financial data company, replacing Matt Winkler, who created the Bloomberg News service for the group’s terminals almost 25 years ago.
Abercrombie & Fitch Chief Executive leaves ‘immediately’: Mike Jeffries, the Abercrombie & Fitch Chief Executive, has left the US-based teen retailer amid flatlining sales, tumbling profits and circling activist investors.
Bidders aim to list Club Med in Hong Kong and Brazil: Fosun International and its partners bidding to take control of Club Méditerranée intend to list the French holiday group in Hong Kong and Brazil to raise funds worth hundreds of millions of euros
Lansdowne Partners profits from Tesco warnings: One of the UK’s largest hedge funds has made tens of millions in profits from a big long-term bet against Tesco after the supermarket reported its fourth profit warning in less than a year.
Edward Glazer to sell $50.00mn Manchester United stake: A scion of Malcolm Glazer is putting at least 3.00mn Manchester United shares on the market, in a sale that should make him more than $50.00mn.
Wetherspoon drops Heineken over Irish dispute: JD Wetherspoon has ditched Heineken in a surprise move that ends a 35-year relationship worth an annual GBP60.00mn and means the Dutch company’s beers will no longer be sold at one of the UK’s larger pub chains
Deutsche Telekom and FireEye create cyber security service: Deutsche Telekom has formed a joint cyber security venture with FireEye, the Silicon Valley cyber security group, focused on offering security services to European companies.
Snapchat poaches Credit Suisse banker who led Alibaba IPO: Imran Khan, the Credit Suisse banker who led Alibaba’s record-setting initial public offering earlier this year, is leaving the bank for the fast-growing messaging app Snapchat.
Former Chairman of India IT group Satyam jailed: The former Chairman of Indian software group Satyam Computer has been jailed for six months, drawing a line under a $1.00bn accounting scandal that damaged the country’s reputation for good corporate governance.
Audit says Vodafone underpaid for Kabel: An auditor has concluded that Kabel Deutschland was worth more than Vodafone paid for it last year, bolstering the case of US hedge fund Elliott Management which is suing the UK telecoms group for a higher payout to shareholders in the German group.
BT board to meet on bidding for O2 or EE: The board of BT is meeting on Tuesday to help choose whether to proceed with an offer to buy O2 or EE, as the company takes another step towards acquiring a mobile business in the UK.
US telecoms price war takes a toll on profits: A cut-throat price war started by Sprint, the number three US wireless operator, has led to some of the most generous holiday deals in recent history. That is good news for consumers, but it is taking its toll on industry profits.
Strong pound hits Asos’s international sales: Asos, the UK-based online fashion retailer, has continued to feel the impact of a strong pound, reporting a fall in international sales amid “challenging” trading conditions.
Korean Air nut rage sparks chaebol backlash: The daughter of Korean Air’s Chairman has resigned from the family-run airline after causing a public uproar by delaying a flight because she was angry at the way she had been served macadamia nuts.
Vodafone: Slipped 2.8% to GBP2.24 amid worries about its business in India, where new entrant Reliance Jio plans to make an aggressive play for high-end subscribers.
Tesco: groundhog day: Tuesday, 8.22am in London. Tesco shares are trading at GBP1.57. They are down 16.0% on Monday’s close, and 53.0% on the year. This, perhaps, was the moment. The bottom. After that the shares recovered to close at GBP1.75. Somebody, somewhere could be sitting on a 12.0% profit on Tesco shares on the day, despite the company issuing its fourth profit warning in a year. How tempting it is to join them. Imagine the day next summer when you brag that, unlike Warren Buffett, you bought at the bottom and enjoyed the ride up. And you could build yourself a case for buying into Tesco shares now. Five years ago Tesco made a trading margin (the company’s preferred form of operating margin) of just under 6.0%. This year it will be around 2.0%. Part of that is a one-off drop relating to the timing of payments from suppliers. But it is also because of the woeful state of the UK grocery market. Assume the 6.0% margins are not coming back and that Tesco can only recover to a margin of 3.0% on sales of GBP62.00bn (a touch below last year’s). That is a trading profit of GBP1.90bn. Take off GBP400.00mn of interest costs and tax at 20.0%, and there is a net profit of GBP1.20bn. That is GBP0.15 per share, and a price-to-earnings ratio of 12.00. Not outrageous, and it is possible that Chief Executive, Dave Lewis, can coax out better margins or revenues.
Chinese brokers: doubling up: Gambling is illegal in China. Playing the stock market is not. And so in the past few weeks, markets have sizzled as retail investors “stir-fry” stocks (the local jargon for speculation). Tuesday saw the first severe day of profit-taking since the rally began — Shanghai shares fell 5.0% — but volumes continued to rise. The day’s turnover reached $128.00bn. China’s securities firms will enjoy the heat. Average daily trading volumes in Shanghai and Shenzhen in December have been about $110.00bn, compared with a daily average in the first half of $17.00bn, according to Bloomberg. Investors have connected the dots. Bloomberg’s index of Chinese brokers has nearly doubled since late October. So, the index is no longer cheap. It trades on 38.00 times earnings estimates for FY15. Those forecasts look conservative, but how conservative is hard to say. Citi Research suggests that earnings at China’s top two listed brokers, Citic Securities and Haitong Securities, could increase as much as 130.0% if next year’s turnover averages $90.00bn a day, or nearly twice that of FY14.
Gulf markets: Christmas cheer: Christmas day. You turn to Uncle Walter, your sarcasm lubricated by the port. How are those Gulf stocks he bragged of last year — given the less than robust oil price? “Now look here, whippersnapper,” says ancient Walter, who has been at the pink gin, “I see what you’re trying to imply. Well, let me tell you: that doesn’t matter as much as you think it does. Take my Dubai index portfolio. The bourse went into its second bear market of the year early this month, and fell nearly 4.0% in a day the last time I checked. But” — grinning toothlessly now — “I stopped checking. It’s up 140.0% in two years and still only 13.00 times forward earnings. Emaar Properties has a $15.00bn market value; it’s a fifth of the index. Construction is almost a 10th of the emirate’s GDP. Those skyscrapers will keep rising as the sources of non-oil wealth. So what’s the harm of a little volatility?” he adds, with now even his wrinkles grinning. Uncle Walter is 42.
*Published with special permission by Anchor Capital (ACG)