Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. Whilst the main talking of item of the day on the front page for nine days in a row had been Facebook, in South Africa it was about court cases and paintings and strong emotions, old and new. I am certainly not going to get into that, far too many emotions and good points made by both sides of the aisle. What it does prove is that we are not boring and have a collective strong spirit that when channelled for good makes a tremendous difference all around. That is all. Our market was driven by the resource counters, those stocks as a collective were up 0.92 percent to send the Jozi all share up just shy of half a percent, 158 points to the goo to close at 33046. Another 1500 points to get back to the early May all time highs. 2nd of May the ALSI touched 34648. Nice number, if you like the word nice. The gold stocks went absolutely berserk (this word is courtesy of Japanese Manga books), we could not quite figure it out, but the night prior in New York most of the gold sector got a serious lift, and we followed that market. As we always do. Up a whopping four and a half percent all the way through to the close. There must be the same thinking (a collective with gold? No ways?) out there that I have heard time a few times now, and that is that the stocks globally trade at a significant discount to the gold price. That is something that we are used to here in South Africa, but perhaps it is not a worldwide phenomenon.
We had the small matter of the SARB's MPC (that is South African Reserve Bank's Monetary Policy Committee) end their deliberations and the en result was an expected hold on rates. I must admit, you might get trader types telling you that the bulls are defending a specific level on the ALSI, but it has absolutely nothing to do with us. Even those sophisticated enough to trade the local futures market should know that if you are watching only one thing around the world, then the S&P futures it is. Because that is so actively traded, that even Jack Bogle's (The Vanguard index tracker guy) eyes pop out when he talks about it, in his mind the S&P indices are an investing tool. I agree with Jack, but we have got distracted again.
The MPC decided to keep rates on hold, no surprises. I said to Paul that if the inflation read moves back inside of the band, and the soft economic patch looks more like a cabbage patch, then we might see the MPC act. As far as monetary policy goes, it was a pretty bland (you can't say vanilla, that is a good flavour) release. We will act this way or that way if we have to. Yes, as we sniggered in the office, the tax payers continue to pay the salaries, you monitor it. Hah hah! If you are looking for the full release, then look no further than this link: 2012-05-24: Statement of the Monetary Policy Committee.
It is always about the volatile currency, that is just the way that it is going to work down here. The statement says as much: "The balance of risks to the inflation outlook is less clear. While the inflation forecast appears to be more favourable, there are renewed upside risks from a possible further weakening of the exchange rate. However, countervailing pressures could come from weaker demand and lower commodity prices, particularly those of oil. On balance the Committee judges these risks to the inflation outlook to be somewhat on the upside." Yip, their guess as to the resolution of the current European Brussels sprouts patch is as good as anyone else. As my hero Jim O'Neill said, it is the one issue on everyones mind right now, Greece. And like I showed you yesterday, at less than two percent of the overall European economy. And I looked last night, the Athens stock exchange has been pounded, but is the market cap really only 17.2 billion Euros? Sounds too small. Which sadly over one year is down 61 percent. Wow.
I can see why Angela Merkel does not want Germany to go down the path of Euro bond issuances right now. It would immediately see Germany's funding costs jump, because they would be lumped with their peers down South, and in particular the third (Italy) and fourth (Spain) largest economies in Europe who both have yields of six percent or more currently. Right now the Germans can get their issuances away and not have to pay the folks holding the bonds anything. Really. Check this out from Wednesday, in case you missed it: German 2-Year Note Bids Beat Target as Yield Falls to Record. But at the same time yesterday there was a warning shot across the bow, German confidence sank, the IFO business climate index dropped, and was below expectations. At the same time the release of manufacturing data in the form of the PMI was also lower than anticipated and clocked 45. A services PMI number from Germany did however manage to beat expectations and register a number comfortably north of 50, indicating expansion. 52.2 to be exact. And the rest of the Euro zone collectively saw both manufacturing and service level PMI's register lower than anticipated reads.
So am I trying to say that one particular read should make Germany sit up and take notice? Well, maybe. I suspect that growing pressure from France and Italy, and even what we said yesterday, higher wage increases in Germany are all heading in the right direction as far as the Germans are concerned. In the words of one of my favourite financial journalists, Sylvia Wadhwa, it is amazing how many people outside of Europe keep suggesting ideas and solutions for the Europeans. The Europeans will solve this, they have had worse moments. Even in the last 100 years, two crippling wars and the rebuild from that. And the Spanish Influenza, which killed around 50 to 100 million people. The cold war. Those seem like much bigger problems than the ones that we are seeing now. And you know what, Europe got through it! Just saying.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Another choppy trading session with yet another move in the last hour of trade that saw both the broader market S&P 500 (+0.27 percent) and the Dow Jones (+0.14) finish in the green, with the tech stocks lagging the rest of the pack, down 0.38 percent after all was said. Definitely not all done, it never is, continuous trade of the futures and an aftermarket see market participants as slaves to each and every second. Facebook caught its second positive trading day, the stock up 3.22 percent on the day. I did a quick run through of the tech sector as a whole, 871 different companies listed there, they are certainly spoilt for choice. There are in fact many, many choices if you have access to all the trading platforms in the world.
IPO's might be fewer in the US, but according to the World Federation of Stock Exchanges, of which there are 54 members globally, there are (were) over 45 thousand listed companies globally, and that excludes investment funds. The NYSE has over 2200 companies, less than in 1999, the NASDAQ has nearly 2800 choices, the Toronto stock exchange crunches both, with over 3700 listed companies. That is up significantly for the Canadians, up two and a half times from 15 years ago. Interestingly in Jozi, we have been going backwards slightly for the last ten years. Warsaw is up fivefold in terms of listed entities in the last 15 years. The whole Asia group has more than doubled their number of listings over the last ten years, with the Bombay stock exchange having over five thousand entities. Looking for price mismatches? It must be there.
Currencies and commodities corner. Dr. Copper is last at 347 US cents per pound, the oil price is slightly lower at 90.63 Dollars per barrel for NYMEX WTI. The gold price is steady to lower at 1552 Dollars per fine ounce, the platinum price is slightly higher at 1417 Dollars per fine ounce. The Rand is steady at best, 8.38 to the US Dollar, 13.12 to the Pound Sterling and 10.50 to the Euro. We can expect a lower start here, Asian markets are lower on the giant (and small) problem that is Greece. And I guess more importantly the debate in Europe about growth and austerity, and yes, you can have both. It is not like reverse gear and first gear, you can cut costs and provide a better platform in which businesses can thrive. Unlike the French who guess that a 75 percent tax rate on rich people will keep them happy. Expect people with choices to move to Switzerland, and then you know what, no tax whatsoever, because those folks ultimately become Swiss and not French. Rich people always have choices.
Sasha Naryshkine and Byron Lotter
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