Anchor Capital: Essential market review, 14 April

By Anchor Capital

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South African Market Review
South African markets closed higher yesterday. Sasol climbed 4.9%, tracking a rise in crude oil prices. Gold miners, Sibanye Gold, Gold Fields and AngloGold Ashanti rose 4.6%, 2.9% and 2.2%, respectively, despite a drop in gold prices. The internet and media group company, Naspers gained 1.8%, taking its lead from strong gains in Hong Kong-based Tencent, in which the company holds a 34.0% stake. Retailers were mixed, with SPAR Group advancing 1.7%, but Mr Price Group dropped 2.0%. African Rainbow Minerals declined 3.0%, as the company indicated that production has been halted at the Khumani Iron Ore Mine after two employees were fatally injured in an incident. The JSE All Share Index rose 0.3% to close at 53,589.31.
UK Market Review
UK markets finished lower yesterday, as weakness in mining sector stocks outweighed gains in financial stocks. BHP Billiton, Antofagasta, and Anglo American dropped 3.3%, 2.5%, and 2.3%, respectively, following disappointing Chinese trade data for March. Tesco fell 2.7%, amid speculation that the company could post a larger-than-expected writedown on its UK supermarkets. Bucking the trend, Aviva advanced 1.2%, rising on the first day of trading after acquiring Friends Life Group. Banking sector stocks, Royal Bank of Scotland Group and HSBC Holdings gained 1.2% and 1.0%, respectively. The FTSE 100 Index declined 0.4% to close at 7,064.30.
US Market Review
US markets ended in the red yesterday. General Electric declined 3.1%, reversing some of Friday’s sharp gains which were triggered by its plans to exit most of its lending operations and the announcement of stock buyback. United Parcel Service dropped 0.7%, despite reports indicating that the company plans to expand its package delivery network in Europe. General Motors fell 0.5%. The company announced that it is considering investing around $1.00bn in its Warren Tech Centre campus. However, JPMorgan Chase, Bank of America and Citigroup added 0.6%, 0.5% and 0.4%, respectively. The S&P 500 Index dropped 0.5% to settle at 2,092.43, while the DJIA Index fell 0.4% to close at 17,977.04. The NASDAQ Index eased 0.2% to finish at 4,988.25.
Asia Market Review
Asian markets are trading mostly weaker this morning, tracking overnight losses on Wall Street. In Japan, Kohnan Shoji declined 1.3%, after the company reported that its operating profit declined in FY15. In Hong Kong, Tencent Holdings slipped 4.4%, after exchange filings revealed that the company’s Chairman, Pony Ma, sold shares worth HKD3.20bn. Sands China, MGM China Holdings and Wynn Macau declined 4.1%, 3.8% and 3.9%, respectively, amid concerns that China might limit mainland tourist visits to Macau. In South Korea, Shinsegae and Lotte Shopping advanced 8.2% and 3.3%, respectively. The Nikkei 225 Index is trading 0.1% lower at 19,893.09, while the Kospi Index is trading 0.4% higher at 2,106.87. The Hang Seng Index is trading 0.4% in the red at 27,896.91.

Commodities

At 06:00 SAST today, Brent crude oil rose0.9% to trade at $57.20/bl, after the US Energy Information Administration (EIA) indicated that it anticipated US shale oil output to record its first monthly drop in over four years. Yesterday, Brent crude oil fell 1.1% to settle at $56.70/bl.Yesterday, the Illinois North Central No.2 Yellow corn spot prices fell 1.4% to $3.50/bushel

At 06:00 SAST today, gold prices advanced0.1% to trade at $1,200.52/oz. Yesterday, gold declined 0.7% to close at $1,198.88/oz, on a stronger US dollar.

Yesterday, copper declined 0.9% to close at $6,001.25/mt. Aluminium closed 0.3% higher at $1,775.00/mt.


Currencies

Yesterday, the South African rand weakened against the US dollar, as the greenback continued to strengthen amid expectations for an interest rate hike in the US in the coming months. Meanwhile, the US government, in its monthly budget statement, showed that the budget deficit narrowed in March. Going forward, direction in the currency pair will be determined by key releases, including retail sales, producer prices and NFIB business optimism index for March in the US, scheduled later today.The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.08% while that for the longer-dated 2026 issue rose to 7.78%.

At 06:00 SAST, the US dollar is trading 0.4% lower against the South African rand at R12.0941, while the euro is trading 0.4% weaker at R12.7792.

Yesterday, the euro declined against most of the major currencies, but advanced against the South African rand. On the macro front, France’s current account deficit widened for February, while industrial output in Italy rebounded more than market expectations for the same period. Moving ahead, traders will eye industrial production figures from the eurozone and consumer price inflation data from Spain, Italy and the UK.

At 06:00 SAST, the euro dropped marginally against the US dollar to trade at $1.05647, while it has advanced marginally against the British pound to trade at GBP0.7204.


Economic Updates 

The British Retail Consortium (BRC) has reported that retail sales across all sectors recorded a rise of 3.2% in the UK on an annual basis, in March. In the previous month, retail sales across all sectors had recorded a rise of 0.2%.In Italy, the seasonally adjusted industrial production recorded a rise of 0.6% on a monthly basis in February, higher than market expectations for an advance of 0.5%. In the previous month, industrial production had fallen 0.7%.

The current account deficit in France widened to EUR1.80bn in February. France had registered a revised current account deficit of EUR0.20bn in the prior month.

The Financial Management Service has reported that the US has posted a budget deficit of $52.91bn in March, from a budget deficit of $192.35bn in the previous month. Markets were expecting a budget deficit of $43.40bn.

The National Australia Bank (NAB) has reported that compared with a level of 0.00 in the previous month, the business confidence index rose to a level of 3.00 in March, in Australia.

The Business conditions advanced to 6.00 in Australia, in March, compared with a reading of 2.00 in the previous month.

The New Zealand Institute of Economic Research has indicated that a net 23.0% of firms polled expect general business conditions to improve over next 6 months, as compared with revised 24.0% in the previous quarter.


Corporate Updates

South AfricaNetcare Limited

: The healthcare company declared a preference dividend of 380.52c/preference share for the period from 1 October 2014 to 31 March 2015, payable on 18 May 2015 to holders of the preference shares.Barloworld Limited: The industrial brand management company declared a preference dividend at the rate of 6.0%/annum in respect of the interim year ended 31 March 2015, payable on 18 May 2015.

African Rainbow Minerals Limited: The mining company indicated that two employees were fatally injured in an incident at the Khumani Iron Ore mine on Sunday, 12 April 2015. It stated that production at the mine has since been halted and the incident is currently being investigated.

Murray & Roberts Holdings Limited: The construction company stated that it has received formal notification that Old Mutual Plc has disposed off a beneficial interest in its securities and following the disposal, Old Mutual Plc holds 4.9% of the issued ordinary share capital of the company.

SNG looks east for African growth: Audit and accounting firm SizweNtsalubaGobodo (SNG) said it had successfully expanded to West and southern Africa and was looking for opportunities in the east African region.

State wholesaler Alle targets rising prices: Alle, Ethiopia’s government-owned wholesaler, says it is targeting as much as 30.0% of the country’s household-goods market by FY18 to stem rising consumer prices in Africa’s fastest-growing economy.

Capitec wants 25.0% of the market by 2020: Capitec says it is aiming to be the preferred retail bank for all South Africans and wants to bank at least 25.0% of all primary banking clients by 2020.

Sharemax directors win appeal: Former and present directors of property syndication company Sharemax have successfully appealed against two controversial Financial Advisory and Intermediary Services Ombud determinations.

Scatec wins project in renewable-energy programme: Scatec Solar ASA, a Norwegian developer of renewable-energy facilities, is among preferred bidders for three solar-power projects in the fourth of five programme rounds to increase electricity from clean sources in South Africa.

UK and US

Commerce Bancshares: The financial services company, in its 1Q15 results, stated that its interest income dropped 4.4% from the same period a year ago to $152.98mn. Its diluted net EPS stood at $0.61, compared with $0.64 recorded in the corresponding period of previous year.

Bank of the Ozarks: In its 1Q15 results, the community banking company indicated that its net interest income increased 63.2% from the corresponding period of last year to $85.49mn. Its diluted net EPS was $0.47, compared with $0.34 posted in the same period of prior year.

Layne Christensen Co.: The global water management, construction and drilling company, in its FY15 results, stated that revenue fell marginally from the preceding year to $797.60mn. It reported a diluted loss from its continuing operations of $3.45/share, compared with a loss of $6.65/share recorded in the previous year.

International Business Machines: The technology and consulting company announced that it is establishing a Watson Health Cloud that will provide a secure and open platform for physicians, researchers, insurers and companies focused on health and wellness solutions. It stated that the company is extending the exclusive Watson cognitive computing platform and is entering into new partnerships with leading companies including Apple, Johnson & Johnson and Medtronic to help optimise consumer and medical devices for data collection, analysis and feedback. The company also announced that it is acquiring Explorys and Phytel to advance its healthcare analytics capabilities.

QUALCOMM Inc.: Media reports revealed that the activist hedge fund, Jana Partners, has taken a $2.00bn stake in the chip making company and is in talks with the company’s management to include strategic changes like a sale of split of its CDMA chipset business and an acceleration to its recently announced $15.00bn stock repurchase.

Best Buy Co.: The steel fabricating company announced the retirement of its Board Chairman, Hatim Tyabji, effective 9 June 2015. It further stated that the company’s President and CEO, Hubert Joly, would succeed Tyabji and take on the additional role of Board Chairman.

Sears Holdings Corporation: The retail company announced that it has created a joint venture with Simon Property Group, as a part of its continued efforts to unlock the value of its extensive portfolio of real estate holdings.

Builders FirstSource: The company announced that it has entered into a definitive purchase agreement to acquire ProBuild Holdings LLC in an all-cash transaction valued at approximately $1.63bn, subject to customary closing conditions and regulatory approvals and is expected to close in 2H15.

easyJet Plc: The company announced the appointment of Andrew Findlay as Director and CFO by the end of October 2015.Andrew Findlay resigned as CFO from Halfords Group to take up the position at the airline company.

ICAP Plc: The company announced that Stuart Bridges would be appointed as Group Finance Director, subject to FCA approval. He was previously the CFO at Hiscox for 16 years.

Telecity Group: The data centre and collocation centre providing company revealed that the Federal Cartel Office of Germany has cleared the recommended all-share merger with Interxion Holdingin Phase I under German merger control law.

Financial Times

UK group Perpetuus poised to export graphene technology to Japan: Perpetuus Advanced Materials, a UK company involved in graphene production, has signed a preliminary agreement with Japan’s Graphene Platform Corporation to export its reactor technology to produce commercial quantities of the “wonder” material for a range of industrial uses.

Next-generation robot chefs create a stir: UK-based Moley Robotics unveiled an autonomous kitchen machine on Tuesday that uses two robot arms and hands to reproduce the movements of a human chef from a 3D-recording of a cooking process that maps every individual motion.

3i appoints Simon Thompson as Chairman: The Chairmanship of 3i has passed to another City veteran, after it was announced that Simon Thompson will join the UK’s oldest listed private equity firm.

Royal Bank of Scotland to sell Luxembourg fund manager arm: Royal Bank of Scotland is to sell its Luxembourg-based fund management arm that oversees GBP20.00bn in assets as part of a restructuring plan to focus on the UK commercial and retail banking market.

Tesco shares fall on fears of bigger than expected writedown: Shares in Tesco fell almost 3.0% on Monday after analysts said Britain’s biggest retailer, already reeling from a GBP260.00mn profit overstatement, could post a bigger than expected writedown on its UK supermarkets.

OneSavings Bank prepares push into small business market: Specialist lender OneSavings Bank is to launch savings accounts for small businesses and is considering a move into asset finance as part of plans to expand into underserved sectors.

Gazprom Chief warns EU over pricing challenge: Gazprom, Russia’s state controlled gas exporter, has said attempts by Brussels to crack down on its pricing model will backfire – and trigger higher average energy costs across Europe.

Miners take toll on FTSE after broker downgrades: Mining stocks took a heavy toll on the FTSE 100 on Monday after a series of downgrades from Citigroup.

JPMorgan’s deputy Emea Chief predicts continued M&A boom: Booming mergers and acquisitions markets will continue well into FY15 as low interest rates, shareholders’ earning demands and high share prices trigger record levels of dealmaking, according to JPMorgan’s newly-appointed second-in-command in Europe, the Middle East and Africa.

Heir to Nina Ricci perfume fortune convicted as result of Swiss HSBC leak: The heir to the Nina Ricci perfume and fashion fortune has been handed a three-year sentence for tax fraud in the first high-profile conviction to come out of the leaking of client details from HSBC’s Swiss private banking arm.

Citigroup reshuffles top ranks as Manuel Medina-Mora retires: Citigroup shuffled its Executive team on Monday, a chain reaction of job moves started by the retirement of Manuel Medina-Mora, head of the consumer business, whose standing was hurt by fraud in Mexico.

Deals raise oversight concerns at Abu Dhabi wealth fund: The managing director of one of Abu Dhabi’s sovereign wealth funds used his private shell companies to secure deals with businesses closely connected to the fund, raising concerns about corporate governance.

Sony pushes into local language films and TV shows: Sony Pictures Entertainment is making a new push into some of the world’s fastest growing film and television markets by creating a new unit which will specialise in local language production.

Performers step up pressure for US radio royalties: US record companies and performing artists are increasing pressure on Congress to close a century-old provision in copyright law that exempts AM/FM radio broadcasters from paying royalties to artists and performers, a loophole they say is unjust in a time of declining music industry revenues.

Qualcomm plays down activist call to break itself up: Qualcomm has signalled it is likely to reject a call for its break-up, adding to Wall Street doubts that there would be a quick resolution to the latest assault by an activist investor on the leading technology company.

Nokia nears bid for Alcatel-Lucent’s wireless business: Nokia is in advanced talks to acquire Alcatel-Lucent’s wireless business, say people familiar with the matter.

Tesco: Fell 2.7% to 244.30p, ahead of full-year results due on 22 April.

Smurfit Kappa: Rose 2.4% to GBP29.40 on reports that US-listed International Paper was in the early stages of examining an offer.


Lex

Volkswagen: auto-crats: Volkswagen chairman Ferdinand PiĂ«ch and the German automaker’s Chief Executive Martin Winterkorn used to get on like a house on fire. Now, far from describing their close working relationship, the term could herald a fiery unravelling of it. VW shares fell by 1.5% on Monday after a report last week in Der Spiegel that the septuagenarian Mr PiĂ«ch has distanced himself from the CEO, who was in line for the chairman’s role. The CEO may be able to count on Mr PiĂ«ch’s cousin, Wolfgang Porsche, who is chairman of Porsche Automobil Holding, which controls 50.7% of VW’s voting rights. He is backed, too, by VW’s Chief labour representative and even the state of Lower Saxony. Mr Winterkorn could do better: VW group’s operating margin of 6.3% lags behind the 8.9% of Toyota. The German group last month guided to a margin of between 5.5% and 6.5%. The problem is that the core VW brand’s margin is below that. Too much production is still based in high-cost Germany – hence Mr Winterkorn’s plan to save EUR5.00bn annually by FY17. Ambitious, with VW’s entrenched unions. Then there is the issue of VW’s flat sales in North America, despite market growth of 6.0%.GE Capital: Garage sale: On Friday, General Electric announced it would divest most of its GE Capital unit. Apart from the regulatory headache that comes from owning assets worth hundreds of billions of dollars, GE’s decision was driven by an attractive deal market. Newly ascendant “speciality” finance companies are expected buyers of big chunks of the business. GE has forecast that its industrial business will earn $1.20 a share in FY15. Assuming that on its own the industrial business would receive the same earnings multiple as rival Honeywell (17), GE Capital traded at just half of its $90.00bn book value before Friday. Recent transactions, and with the 10.0% rally in GE shares on Friday, suggest that GE could get prices near book value for the divested assets. The $200.00bn worth of GE assets up for sale is largely comprised of various middle-market commercial lending businesses. Private equity and equipment lenders will figure in the auctions. But the opportunity for big banks, who are awash in cheap liquidity from deposits, is to pluck out loan portfolios whose capital requirements are not too onerous – for example, solid real estate loans. Wells Fargo teamed up with Blackstone on Friday to snatch $9.00bn in performing loans from GE Capital. Garage sales draw an interesting crowd.

Monte dei Paschi: history lessons: The regulators worry when any single exposure is more than 25.0% of a bank’s capital. Monte dei Paschi’s exposure to the Japanese bank is about EUR3.40bn, or 35.0% of its capital. That is the result of a series of FY09 deals between the two banks, named Alexandria. To simplify, they involved Monte dei Paschi taking cash in return for government bonds (which it promised to buy back), while also granting Nomura a credit line. The deal is at the centre of a dispute and lawyers are involved. So Monte dei Paschi will struggle to cut its exposure to Nomura for a while yet. The bank’s shareholders will this week vote on a proposed EUR3.00bn rights issue, the proceeds of which will plug the hole found by last year’s European Asset Quality Review and stress tests. A 27.0% share price jump since the start of this year suggests some people believe in the future. The bank is pushing its costs down, unwanted assets are being sold and, after a big impairment charge last year, bad loan coverage is improving. More significantly, once the new capital is raised Monte dei Paschi may even be healthy enough to take part in likely consolidation among Italy’s popolari banks. With all that ahead, paying 0.5 times book value for the shares might not seem like such a bad idea. But given how much the bank is dominated by its troubled past, it is hard to have much confidence for the future.

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