Market Update #4

JSE Top 40 Index: as at 04 October 2018

Top40(4)

The JSE Top 40 continued push lower with the blue chips adding to their recent weakness. The level of interest is at 48,000 where price has been unable to close below over the past year. It seems the most recent test of this level on 04 October 2018 resulted in the bulls coming back online as the day opened marginally above the 48,000 level and continued to trade higher through the day. Price would need to close above the steep downward trend line and the last swing high around the 51,250 level to make a further move higher convincing.

JSE Industrials Index: as at 04 October 2018

Industrials(4)

With a significant amount of the heavy weights in the JSE Top 40 Index being in the JSE Industrial Index, it’s not surprising to see the two indices sharing a similar look. It’s evident the weakness is coming from the Industrial Index having moved well below the 69,000 level and currently flirting with the 65,500 level. The last time price was hovering in this area was at the beginning of 2017 after it had come off a bottom level of 61,200. Depending on the extent of price momentum, a possible scenario is a retest of 69,000 before moving lower. Otherwise the next likely scenario is price consolidation similar to the green box on the left of the chart.

JSE Financials Index: as at 04 October 2018

Financials(4)

The JSE Financials Index has been trading in a descending triangle with a well established base. Price has recently formed a hammer candle formation evident of possible waning momentum, and alerting us to a possible reversal. On a bigger scale, there is the possibility of an inverted cup & handle formation, although it’s quite jagged and not the ideal structure. Generally the formation carries a large increase in price momentum when it breaks out, thus if price can remain above the horizontal line of around 15,000 it would invalidate the cup & handle formation and possibly provide a robust floor for the Financial Index going forward.

JSE Resources Index: as at 04 October 2018

Resources(4)

The JSE Resources Index continues to trot higher. The price action has been interesting of late with the last two swing highs reaching the same level yet marginally higher than the high before. All while the last swing low rejected the bottom channel from quite a way off. This indicates increasing price pressure as the bulls and bears start to see eye to eye. For perspective, although price is currently at its yearly high it was at the horizontal level in the first half of 2015.

MSCI World Index: as at 04 October 2018

msci(4)

The MSCI World Index has been trading sideways over the last two weeks. This speaks to the general occurrences of late as quantitative easing winds down, emerging markets continue their weakness and trade wars create uncertainty. The index still has some way to go though to reach the level seen at the beginning of 2018, and if it can remain above the horizontal of 2,166 then it bodes well for moving higher.

USD/ZAR: as at 04 October 2018

USDZAR(4)

The rand weakened against the dollar over the last week as it rejected both the upward trend line and horizontal resistance. Price has moved back to the second most recent swing high and it’s at this point that there is an identifiable head and shoulders formation indicated by the three circles. It’s difficult to determine the probability of this formation actually playing out at the moment. This is because the fundamentals for the rand don’t quite justify a full reversal. There’s scope for it to move back to the R14 level but further strength is somewhat limited.

Brent Crude: as at 04 October 2018

Brent(4)

Brent continues its run higher. The most recent fundamental developments that may affect the extent of a move higher, is the fact that Saudi Arabia and Russia concluded a private deal with each other in September to raise output in light of the sanctions on Iran. While their increase in output is not expected to alleviate the effect of the sanctions significantly, it does provide insight into the obedience of OPEC and co. members.

US Crude: as at 04 October 2018

WTI(4)

US Crude looks to be making a double-top as indicated by the circles. US authorities remain confident in their ability to supply their market, and coupled with the OPEC developments, it may be the start of some consolidation in the sticky liquid. However, the horizontal line provides perspective in that price was trading above the 90 level in the latter part of 2014. It’s not unreasonable for price to move back up to this point again within the current context, especially if US oil inventories suffer a supply shock or the effect of sanctions on Iran are more severe than expected.

Gold: as at 4 October 2018

gold(4)

Gold continues to trade sideways as the rhetoric from the Federal Reserve policymakers became more unified in a hawkish stance justified by a strong local economy. Further, the Italian government conceded that it would reduce its budget deficit and debt levels, providing risk relief on fiscal policy for the European giant. The former event maintains dollar strength which makes gold pricey for global buyers, while the latter event reduces market risk and gold’s appeal as a risk haven asset. It seems for now that the global status quo is represented in the sideways movement of the precious metal.

Economy

The World Bank revised South Africa’s 2018 growth forecast from 1.4% to 1.0% and the 2019 forecast from 1.8% to 1.3%. Despite the revision, it is still somewhat higher than what most institutions have forecasted. The World Bank was also weary of Ramaphosa’s economic stimulus plan having limited effect, a statement echoed by most institutions.

Both the Absa PMI and Standard Bank PMI results came in at weak levels. The former measures sentiment in the manufacturing sector and provided a score of 43.2 down from 43.4. The latter looks at the whole economy and provided a score of 48 in September up from 47.2 in August. Despite the increase, a number below 50 indicates weakness.

PwC’s 10th SA Mine Report indicated improved improved capital expenditure for the year ending June. The improvement was a 19% increase off a decade low. Industry revenue increased from R370bn to R398bn, however operating costs grew to R312bn from R278bn, muting the effect of the revenue increase.

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