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South Africa Market Review
South African markets closed in the red on Friday, following the release of mixed labour market data in the US. Platinum miners, Northam Platinum, Impala Platinum Holdings and Lonmin plummeted 1.7%, 1.3% and 1.1%, respectively. Royal Bafokeng Platinum dropped 1.0%, after it revealed that operations have been suspended at its BRPM North Shaft after the death of a JIC contractor employee at the shaft. Old Mutual fell 1.7%. The company announced that it has brought a 23.3% stake in UAP Holdings, an East and Central African financial services company, for $97.60mn. On the upside, gold miners, Sibanye Gold and Harmony Gold Mining climbed 3.1% and 2.5%, respectively. The JSE All Share Index dropped 1.3% to close at 48,950.50.
UK Market Review
UK markets finished in negative territory on Friday, amid weakness in housing and supermarket sector stocks and following a surprise decline in UK industrial production data for November. Home builders, Taylor Wimpey and Persimmon plunged 5.4% and 5.2%, respectively. Wm Morrison Supermarkets and Tesco shed 4.6% and 2.5%, respectively, reversing gains from the previous session. Royal Bank of Scotland Group dropped 2.7%, amid reports that it is in talks to raise capital totalling GBP2.00bn, which might potentially dilute taxpayers’ investment. On the upside, insurers, Friends Life Group and Aviva advanced 1.8% and 1.5% respectively. The FTSE 100 Index declined 1.1% to close at 6,501.14.
US Market Review
US markets ended lower on Friday, after data revealed that domestic wages dropped unexpectedly in December. Bed Bath & Beyond tumbled 6.8%, after posting downbeat 3Q15 sales. Cameron International, ONEOK and Valero Energy plummeted 4.3%, 3.4% and 2.7%, respectively. JPMorgan Chase fell 1.7%, after the bank indicated that it has agreed to pay around $500.00mn to settle a class-action lawsuit related to the sale of sub-standard mortgage-backed securities by Bear Stearns. However, Mallinckrodt and Regeneron Pharmaceuticals advanced 3.4% and 1.9%, respectively. The S&P 500 Index dropped 0.8% to settle at 2,044.81, while the DJIA Index tumbled 1.0% to close at 17,737.37. The NASDAQ Index declined 0.7% to finish at 4,704.07.
Asia Market Review
Asian markets are trading lower this morning, tracking losses on Wall Street on Friday. In Hong Kong, Greentown China Holdings dropped 1.5%, despite reporting a considerable rise in its December contract sales. However, Cheung Kong Holdings and Hutchison Whampoa jumped 14.4% and 12.4% respectively, after a Hong Kong billionaire announced a $24.00bn restructuring of the two firms. China Molybdenum added 0.6%, after projecting a 55% increase in its FY14 profit. In South Korea, Hyundai Motor plunged 1.7%, on reports that South Korea’s auto exports dropped for the second straight year in 2014. The Hang Seng Index is trading marginally lower at 23,918.44, while the Kospi Index is trading 0.2% in the red at 1,921.08. Japanese markets are closed today on account of holiday.
Commodities
At 06:00 SAST today, Brent crude oil fell 1.3% to trade at $48.74/bl. Reports revealed that Iraq raised the selling price for February shipments of its main Basrah Light crude in Asia by $0.30/bl. On Friday, Brent crude oil fell 1.8% to settle at $49.37/bl, amid continued worries over a supply glut in the global oil market.
On Friday, the Illinois North Central No.2 Yellow corn spot prices rose 1.6% to $ 3.72 /bushel.
At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,226.49/oz. On Friday, gold gained 1.2% to close at $1,223.25/oz., after the US employment report for December showed a surprise drop in hourly wages.
On Friday, copper declined 0.1% to close at $6,166.50/mt. Aluminium closed 1.2% lower at $1,789.75/mt.
Currencies
On Friday, the South African rand strengthened against the US dollar, following the release of the US labour market report which showed that wages declined unexpectedly on a monthly basis in December. However, the report also revealed that nonfarm payrolls increased at a robust pace in December. Going forward, market participants will keep a tab on South Africa’s manufacturing production data later today for further direction to the South African rand against the majors.
The yield on benchmark government bonds remained mixed on Friday. The yield on 2015 bond rose to 6.19% while that for the longer-dated 2026 issue declined to 7.62%.
At 06:00 SAST, the US dollar is trading 0.1% lower against the South African rand at R11.4840, while the euro is trading unchanged at R13.6160. At 06:00 SAST, the British pound has declined 0.1% against the South African rand to trade at R17.4189.
On Friday, the euro and the British pound weakened against the South African rand, following weaker-than-expected industrial production data in Germany and the UK for November.
At 06:00 SAST, the euro advanced 0.1% against the US dollar to trade at $1.1856, while it has gained 0.1% against the British pound to trade at GBP0.7818.
Economic Updates
National Statistics has reported that industrial production unexpectedly fell 0.1% in the UK on a monthly basis in November, compared with a revised fall of 0.3% in the prior month. Markets were anticipating industrial production to advance 0.2%.
National Statistics has reported that, on a monthly basis in the UK, manufacturing production recorded a rise of 0.7% in November, more than market expectations for an advance of 0.3%. Manufacturing production had fallen 0.7% in the prior month.
In the UK, NIESR estimated gross domestic product (GDP) advanced 0.6% on a monthly basis, in the October-December 2014 period. NIESR estimated GDP had registered a rise of 0.7% in the July-September 2014 period.
The UK has registered a total trade deficit of GBP1.41bn in November, following a revised total trade deficit of GBP2.25bn in the previous month. Markets were expecting a total trade deficit of GBP2.00bn.
State Secretariat for Economic Affairs (SECO) has indicated that the seasonally adjusted unemployment rate in Switzerland remained unchanged at a level of 3.2% in December. Markets were anticipating unemployment rate to fall to a level of 3.1%.
In Switzerland, the consumer price index slid 0.5% on a monthly basis in December, compared with an unchanged reading in the prior month. Market expectations were for the consumer price index to drop 0.4%.
In Germany, the seasonally adjusted industrial production registered an unexpected drop of 0.1% in November on a monthly basis, compared with a revised advance of 0.6% in the prior month. Market anticipations were for industrial production to climb 0.3%.
According to Statistiches Bundesamt Deutschland, the non-seasonally adjusted current account surplus in Germany dropped to EUR18.60bn in November, following a revised current account surplus of EUR22.50bn in the previous month. Market anticipations were for the country’s current account surplus to widen to EUR23.00 billion.
Germany has registered a seasonally adjusted trade surplus of EUR17.70bn in November, following a revised trade surplus of EUR20.80bn in the prior month. Markets were anticipating a trade surplus of EUR20.40bn.
The net number of people employed dropped unexpectedly by 4.30k in Canada, in December, following a fall of 10.70k in the prior month. Markets were anticipating the net number of people employed to rise 15.00k.
The US Department of Labour has indicated that unemployment rate in the US eased to 5.6% in December, compared with a level of 5.8% in the prior month. Market anticipations were for unemployment rate to fall to a level of 5.7%.
The US Department of Labour has indicated that non-farm payrolls in the US rose by 252.00k in December, higher than market anticipations of an advance of 240.00k. Non-farm payrolls had registered a revised gain of 353.00k in the previous month.
Average hourly earnings of all employees in the US unexpectedly eased 0.2% on a monthly basis in December, compared with a revised advance of 0.2% in the prior month. Market anticipations were for average hourly earnings of all employees to advance 0.2%.
Corporate Updates
South Africa
Old Mutual: The company announced that it has brought a 23.3% stake in UAP Holdings Limited, an East and Central African financial services company with a presence in 6 countries, for $97.60mn.
Anglo American Platinum: Media reports revealed that the company is challenging a law firm and an administration company involved in debt administration asserting that they are practicing unlawful over-charging. Furthermore, the company is also mounting a constitutional challenge against the fees law firms charge when acting as administrators. It also stated that this move by the company can have important consequences for the way debt is collected for thousands of employees, especially in the mining sector.
Royal Bafokeng Platinum Limited: The company announced the death of a JIC contractor employee, Mr Amelio Paquete, at its BRPM North Shaft. He was fatally injured when he was trapped during a fall of ground in a stope panel on 8 January 2014. All normal underground operations have been suspended at North Shaft pending a full investigation into the incident, which already commenced in conjunction with the Department of Mineral Resources.
Jetworx creditors still have not met: The first meeting of creditors of Jetworx, the aircraft maintenance subsidiary of bankrupt 1time holdings, is still to be convened more than six months after a final winding-up order was issued. 1time ceased operations in FY12.
De Beers’ rough sales forecast to have risen: DE Beers’ sales of rough diamonds are likely to have risen 14.0% to more than $6.50bn in the year to December compared with the previous year, boosted by price appreciation and a stronger than usual second half, according to global diamond researchers and traders Rapaport.
Transnet in the dock over costly broken gate bungle: A Broken gate at the heart of South Africa’s biggest port has cost the economy an estimated R500.00mn — and it still isn’t fixed 18 months after shipping companies first raised the alarm.
Another SABC board member resigns: SABC board member, Bongani Khumalo, has resigned, the department of communications said on Sunday.
UK and US
AbbVie: The company, in its guidance for FY15, revealed that its diluted EPS is expected to be in the range of $4.25 to $4.45 on an adjusted basis and between $3.99 and $4.19 under GAAP. Market expects FY15 EPS to be at $4.30.
JPMorgan Chase & Co.: Reports revealed that the bank has agreed to pay roughly $500.00mn to settle a lawsuit over approximately $18.00bn worth of sub-standard mortgage backed securities sold by Bear Stearns Cos., which was acquired by JPMorgan Chase in 2008.
America Movil: Media reports indicated that the telecommunications company would spin off its holding company, Sercotel.
General Motors: According to media reports, the company plans to launch an electric vehicle called the Chevrolet Bolt that would cost $30.00k and would be capable of driving 200 miles on a charge by FY17.
Regeneron Pharmaceuticals: The company has along with Sanofi announced that two new ODYSSEY trials, which are the first Phase 3 trials to assess alirocumab administered every four weeks, met their primary objectives.
JD.com Inc.: The company announced that along with Tencent Holdings it has entered into definitive agreements with Bitauto, wherein the former two companies would make investments of approximately $1.30bn in cash and resources in Bitauto and cash investments of approximately $250.00mn in Bitauto’s subsidiary, YiXin Capital. Following the completion of the transactions the three companies would work together to provide enhanced online automotive transaction services to car buyers across China.
Tesla Motors: Media reports revealed that the sale of the automaker’s Model S in the German market failed to accelerate.
Gap Inc.: The company indicated that net sales were up 4.0% and comparable sales were up 3.0% for the November and December 2014 holiday shopping season, compared with the prior year.
Norwegian Cruise Line Holdings: The company announced that its board has selected Frank Del Rio as the new President and CEO. He would be replacing Kevin Sheehan, who has decided to leave the company. Additionally, the company reiterated its prior FY14 adjusted EPS guidance range of $2.28 to $2.32.
Caesars Entertainment: The company along with its subsidiary, Caesars Entertainment Operating Company, announced that more than 60.0% holders of claims in respect of latter’s senior secured notes have signed the Amended and Restated Restructuring Support and Forbearance Agreement, dated as of 31 December 2014, among Caesars Entertainment, CEOC and the Consenting Creditors.
Cray Inc.: The supercomputer company stated that it would miss targets for FY14 because it was unable to deliver on all of its late-year contracts, although the company issued upbeat guidance for FY15 against the backdrop of a high number of strong contracts signed last year.
Agenus Inc.: The company and Incyte announced that they have entered into a global license, development and commercialisation agreement focused on immuno-therapeutics using the former’s proprietary Retrocyte Display antibody discovery platform. Under the terms of the agreement, Incyte will make upfront payments to the former of around $25.00mn and invest $35.00mn in the former’s newly issued shares.
Stanley Furniture: The furniture maker stated that it has identified an accounting error related to its deferred compensation capital enhancement plan and it would correct the mistake by reducing its net loss for FY14 and FY13 or increase net income for FY12.
Wet Seal: Media reports revealed that the company has hired restructuring lawyers as it works toward a potential bankruptcy filing.
Restaurant Group: The company, in its FY14 and Christmas trading update, stated that its FY14 total turnover went up by 9.6% on the previous year, and like-for-like sales up 2.8%. Its Christmas trading rose with like-for-like sales growth of 5.0% over the two week holiday period to 4 January 2015. The company also indicated that it opened 40 new restaurants, compared with 35 in the preceding year. The company stated that the outlook for FY15 is positive with growth in disposable consumer income, an increasing number of new site openings, and a considerably improved outlook for UK Cinema performance.
SSP Group: The company, in its 1Q15 trading update, indicated that its overall trading has been in line with expectations. On a constant currency basis, total revenue rose 2.9%, with like-for-like sales growth of 2.7%, compared with the same period last year. At actual currency rates, given the strengthening of Sterling compared with the prior year, total revenue dropped 0.1% on an annual basis.
Unite Group: The student accommodation company, in its quarterly property valuation updates, indicated that the value of its property portfolios increased over 4Q14 both on a quarterly and annual basis. The UK Student Accommodation Fund (USAF) was independently valued at GBP1.57bn at 31 December 2014, up 1.2% against the end of 3Q14 and 3.9% annually. It also stated that the London Student Accommodation Joint Venture (LSAV) portfolio was valued at GBP426.00mn at 31 December 2014, up 1.2% against the previous quarter and up 4.6% annually. It further stated that USAF portfolio is presently valued at an average yield of 6.5%, against 5.9% for the LSAV portfolio.
Laird Plc: The company, in its FY14 trading update, stated that it is confident that its expectations for FY14 remain on track, based on trading through 4Q14. The company also indicated that execution of its strategy has delivered further good progress through the year and it remains encouraged by the outlook for the company.
Riverstone Energy Limited: The energy company announced the formation of Riverstone Credit Opportunities L.P. (RCO), which is a new fund designed to take advantage of the current issues facing leveraged capital markets for energy companies. It further stated that it has committed $375.00mn to RCO, comprising $250.00mn from Riverstone Global Energy and Power Fund V and up to $125.00mn from the company itself.
Financial Times
Pension withdrawals set to rise by GBP6.00bn: Some GBP6.00bn more than usual could be taken out of private pension plans – three times the government’s official estimate – once rule changes come into force allowing people aged over 55 to withdraw their retirement savings as cash, research suggests.
Jaguar to launch F-Pace premium SUV: Jaguar has confirmed the launch of its first ever “performance crossover” car — an aluminium-bodied sport utility vehicle designed to move the premium saloon and sports car maker out from the shadows of its more successful Land Rover stable mate.
Fat Face enjoys strong Christmas trading: Fat Face, the casual fashion retailer that did not start its sale before Boxing Day for the fifth consecutive year, will report strong Christmas trading on Monday.
RBS in talks over retreat from Asia operations: Royal Bank of Scotland is discussing a potential retreat from Asia as the state-controlled bank accelerates its strategy of shedding many non-UK and investment banking operations.
Asset managers plan to raise standards: The Investment Association, which represents UK asset managers that hold more than GBP5.00trn on behalf of investors, is to publish a statement of investment principles over the next few months as part of an industry-wide drive to raise standards.
Shire in $5.20bn deal for US biotech NPS: Shire, Britain’s third-largest drugmaker by market value, has made its biggest ever acquisition with a $5.20bn deal for US biotechnology company, NPS Pharmaceuticals, as the FTSE 100 group looks to build its pipeline of standalone speciality drugs.
Drug companies call for overhaul of NHS cost-benefit evaluations: Drug companies are calling for an overhaul of the way medicines are evaluated for use in the NHS, in anticipation that the health service will stop paying for several expensive cancer therapies.
Fitness First highlights personal touch for exercise: Fitness First called the end of the equipment-obsessed gym, announcing it was hiring 250 personal trainers to help drive its shift into the premium health and fitness market.
Criticism of banker pay likely as UK election nears: António Horta-Osório is bracing himself for criticism of a big share award that will propel the Portuguese-born Chief Executive of Lloyds Banking Group on to the list of the world’s best paid bankers.
Suez Environnement head’s vow on Sita UK: The head of France’s Suez Environnement, which owns one of Britain’s leading waste management operators, said he would not sell or exit the company’s operations in the UK if Britain voted to exit the EU.
Gold miners struggle to shine in investors’ eyes: Gold miners are hoping that the four-year low in the precious metal’s price, recorded in November, marked the end of a torrid period for the industry – and that the outlook will be brighter in FY15.
Banking bonuses set to disappoint in City and on Wall Street: Bankers on both sides of the Atlantic are fighting over a diminished bonus pool this year, according to Executives. In the UK, most investment banks expect to see bonuses fall after a tough year, but are still braced for political sensitivities over the topic given the looming general election.
Hitachi to open GBP82.00mn train plant in Durham this year: A newly completed track from one of the UK’s biggest new factories links rail transport in the 21st century to the industrial revolution of the 19th.
Diageo wins India United Spirits vote: Diageo has scored an important victory in India with minority shareholder approval for its local subsidiary, United Spirits, to make, sell and distribute its parent’s products — two months after investors rejected its first attempt for being too vague.
Enel in push to sell Eastern Europe assets: Enel is pressing ahead with plans to sell assets in Slovakia and Romania despite a recent delay, in an effort to reassure investors that it will keep paying down its debt and refocus on faster-growing markets.
Chinese group General Nice takes over Greenland mine: A Chinese mining company is taking over a planned $2.00bn iron ore mine in Greenland, making it the first Arctic resources project to come under the full ownership of China.
Jon Moulton-backed pharma group Redx aims for GBP80.00mn listing: A biotech company backed by controversial City Link owner Jon Moulton is set to go public in an GBP80.00mn flotation.
Buyout group Helios raises record $1.00bn Africa fund: The first $1.00bn-plus Africa-focused private equity fund has been raised by Helios Investment Partners, a London-based group founded almost a decade ago by a pair of Nigerian-born dealmakers.
Foreign leaders join 4.00m French in march against Paris terror killings: More than 3.70m people marched in the streets of Paris and across France on Sunday in a defiant display of unity against terrorism and racism, after the deadliest attacks on French soil in more than half a century struck the nation at its core.
Wanda challenges Disney with shift from property to theme parks: Wang Jianlin, China’s second-richest man, made his fortune building shopping malls. Of late, however, he has shown more interest in becoming an entertainment mogul.
Catlin: Rose 6.0% to GBP7.00, after XL finalised its takeover of the insurer on modestly improved terms.
Laird: Fell 9.1% to GBP3.02, after the electronics maker said it would meet, rather than beat, full-year forecasts.
Lex:
Chindia: getting back together?: In common perception, China has had the better divorce, its economy realising its potential while India’s struggles. The data tell a different story. In the decade since FY04, India’s economy in purchasing power parity terms has achieved an annual growth rate of 14.0%, according to Bloomberg. China has only managed 12. Over the same timeframe, the MSCI India index has delivered a total return of 237.0% to China’s 154. India still has advantages. Its economy is more consumer-driven – according to World Bank data, consumption as a percentage of GDP was over 70.0% in India, versus less than half in China. So India is less likely to suffer from the sort of fixed asset investment hangover that now besets China. And its young population is not ageing as fast: nearly a third of India’s people are below the age of 15.China and India still have common ground. The dominance of a slothful public sector is marked in both countries. The neglect of small and medium enterprises by mainstream lenders hampers both economies. And both are pushing their banking sectors to serve the smaller end of their economies – India through rural account openings and China by granting private banking licenses. And India aims to develop new industries in the manufacturing sector, reminiscent of China’s last five year plan, which focused on several sectors key to rebalancing the economy. If Chindia is getting back together, perhaps the next decade belongs to China.
Circle and the NHS: operation game: The closest thing that the English have to a national religion is their National Health Service, a former writer of this column once said. Perhaps. Another English tradition is a horror of discussing the messier bits of religion in polite company. In the matter of the NHS, the messy bit is the funding of it. At one hospital, the numbers have not added up for Circle Holdings. The first listed company to take on the running of a NHS trust said on Friday said that it would seek to end its 10-year contract three years in. The Hinchingbrooke healthcare trust had run up a GBP39.00mn historic deficit by FY09. This financial hole included a previous attempt at private funding — a GBP22.00mn treatment centre that failed to earn the money expected — and was severe, but not unique. A quarter of NHS trusts ran deficits FY13 to FY14. How did Circle fare? It brought down Hinchingbrooke’s GBP10.00mn annual deficit on entering to about GBP1.00mn a year later. Had it achieved a surplus that let the hospital repay its debt, the company could have made a GBP35.00mn profit. But it had to inject nearly GBP5.00mn to underwrite deficits even before government funding for Hinchingbrooke — an acute hospital where patient demand is especially tricky to assess — was cut.
Pay TV: bundle of joy: Opening the monthly US cable TV bill is a punch to the gut. Add $19.99 for this fee to $7.99 for that service and the total bill comes in well more than $100.00. This week, however, came something much cheaper. The traditional cable or satellite TV bundle is not limited to just a couple of hundred channels. It also extends to broadband internet, a digital recorder and the ability to watch programmes on TV, phone, PC or tablet. The Dish service, called Sling TV, is simply the ability to watch ESPN and 11 other networks of varying popularity, live on one device at a time. Notably the broadcast networks, ABC, NBC, CBS and Fox, are not included. Adding in other ad hoc streaming platforms such as Netflix, Amazon, or HBO, as well as the fast internet connection needed to consume this content, will total about $100.00. Not so cheap after all. These hipsters would never do anything so old fashioned as to buy a cable TV package, but may be cajoled into buying piecemeal services. A la carte is rarely cheap, but it suits those who want to pick and choose.
*Published with special permission by Anchor Capital (ACG)