"You would have expected the equities market to come under pressure with a report of this nature, weaker jobs is not good, right? Yes. Wrong. That did not happen, equity markets closed higher on the session. Part of the reason was a surge in oil prices, the news filtering through that demand in Asia is looking better as the Saudis have been able to sell their product at slightly higher prices."
To market, to market to buy a fat pig. Thursday was a very long time ago. In-between now and then, we had a very unfavourable US jobs report, see here: Employment Situation Summary. The headline number was a pretty wide miss, over 100 thousand fewer jobs created than the best guesstimates. It is a very volatile number, that in all honesty has been very unpredictable. Out of a workforce of 156 million in the US, 100 thousand is about 0.064 percent. Not much, enough to move the needle. The sector to lose jobs was mining, in fact almost all the jobs created in mining last year in the US have been lost this year. Mining includes quarrying as well as the more important (in this case) oil and gas extraction. The FT suggests that this "jobs report" is the worst miss since August 2009. I believe them, personally I do not keep score, and most people I know do not remember last month vs. expectations. Oh, and there were downward revisions from the prior months, as much as 69 thousand less for Jan and Feb collectively.
We spoke a few reports back about the impact of not only direct jobs associated with the industry, the services and manufacturing jobs relating directly to the industry would also be impacted by lower commodity prices. More specifically, oil and gas prices that are lower. Believe it or not, the categories are each drilled into (no pun intended), if you look at the Employment and Unemployment table under Mining, Quarrying, and Oil and Gas Extraction, you will see that the unemployment rate has gone from 4.1 percent in December 2014 to 8 percent in March. To rub salt into the wounds of those hanging on to their jobs, the average weekly hours has dropped, with those in non supervisory roles seeing their wages lower too.
You would have expected the equities market to come under pressure with a report of this nature, weaker jobs is not good, right? Yes. Wrong. That did not happen, equity markets closed higher on the session. Part of the reason was a surge in oil prices, the news filtering through that demand in Asia is looking better as the Saudis have been able to sell their product at slightly higher prices. Shunting through higher prices means that the demand side is looking better. Energy, materials and utilities all comfortably outpaced the broader market, as a collective the broader market S&P 500 was two-thirds of a percent better on the day. The weaker employment report possibly mean a more measured rate of increases in interest rates, that is also equities positive. Perhaps another reason was that the Greeks said that they would meet all of their obligations, remembering that there is the small matter of paying the IMF 450 million Euros due by Thursday this week.
Of course the US was open for business yesterday, we were not. Closed. Admittedly Easter Monday is a holiday celebrated in many countries, strangely not Portugal in Europe. Closer to home, not in Angola or Mozambique, nor the DRC. Nor Mauritius, possibly as a result of many holidays in that country, 13 public holidays a year on that island state. My view on holidays is that they should not interfere with work time, you either are off, or you are on. In a country where we struggle with productivity and unemployment, the obvious choice for celebrations (for me) is the weekend. You can go even one step further, look at the strange and wonderful life of Jack Ma (the Alibaba founder), who is quoted as saying: "If You're Poor At 35, You Deserve It". That is pretty harsh, he suggests that you have no ambition if that (poor at 35) is the case. Of course not all people are enabled with the same drive as Jack Ma, his Wikipedia entry tells me that he failed his university entrance exam no less than three times! Tenacity and drive are deep in the core.
Locally recourses on Thursday were slam dunked, mostly those businesses involved in the business of iron ore mining. As it stand now, Telkom nearly has a bigger market cap than Kumba Iron ore. Such has been the divergence between the two respective share prices. Financials and industrials shares as a collective tried hard to drag the market, resources down over two and one quarter percent however saw to it that the local market ended the session marginally in the red, down one-tenth of a percent.
Resources are gaping higher, up nearly two percent at the get go this morning, in large part a weaker Dollar has translated to higher commodity prices and of course look at the Rand to the US Dollar, at 11.80 to the US Dollar. The strong Dollar trade is unwinding a little here, earnings this "season" are going to be key. JNJ reports this time next week, as does Intel and JP Morgan. That will possibly be our first insight into how strong the Dollar has been, realtime to US earnings and by extension what the S&P 500 valuations could be relative to forward expectations. Remember that whilst the index has a "price" and collective earnings to justify the level, what matters as buyers of companies is the stocks that you own. We will monitor and watch our companies closely.
Lastly, I see this all of the time, folks bemoaning the corrupt and politically connected and somehow it is (the argument) always insular. Meaning that it is confined to our borders. Of course this is not true, it is the nature of the chattering classes in their respective environments. That is why it is important that you read this WSJ article: How Brazil's 'Nine Horsemen' Cracked a Bribery Scandal. Unfortunately politics and business will always mix and mingle, those making the laws are powerful, those searching for ultimate profitability can easily find a way to politicians open doors. Perhaps the democracy model should be updated in some way, too much influence. We have technology, we should use more of that.
Company corner
We saw that a successful (lack of violence) election in Nigeria and a passing of the political baton to another political dispensation bring about a positive reaction for those wanting to own MTN shares. I am figuring that a second "peaceful" event (depending on who you are, which is always the case) between the world powers and Iran will lead to a similar type of reaction for MTN. See the FT story: Iran nuclear deal primes market for rising oil exports. Plus, this is also good news for MTN: Iranian Private Businesses Hope for Relief From Easing Sanctions. We shall see MTN during the course of the day, I suspect that they should see "more buyers than sellers" today. Stocks in Iran have had two big days of trade: Iran Nuclear Deal Sends Tehran Stocks Higher. Early in the trading session MTN is up just shy of two percent. The stock is up nearly ten percent in the last six trading sessions.
Ugghhhh. Sorry, it seems like I was out by a day. Discovery have announced the results of their rights issue, 99.2 percent subscribed for by existing shareholders, listen to this, an extra 67 million shares were applied for in the excess rights issue. Seeing as the difference was so small, there will only be 463 thousand excess shares to go around, heavily oversubscribed. Although, those close to the subscription process will tell you that there are people who "job" the system, knowing that they will not get all of the shares. Fancy that, 67 million excess shares applied for in a rights issue where there were only 55.5 million available. The shares will be allocated today, the cash will be debited from the accounts today, the shares will appear after the JSE overnight recon in peoples accounts tomorrow. Success! It is interesting to note that Discovery had such strong demand for their shares, obviously as a result of the significant discount.
Michael's Musings
On Wednesday Monsanto, the agriculture company, released their Second Quarter Financial Results , which were not great. The market was expecting worse than they delivered, the share price jumped 4% on the results.
Revenue for the quarter dropped $5.2 billion (est was for $5.59 billion) from $5.8 billion last year this time. The EPS also dropped to $2.90 a share from $3.15 a share, the guidance for the full year though was still in the range previously indicated. EPS for the full year is expected to be at the low end of the $5.75 to $6.00 a share range, which will still beat last years EPS of $5.22.
The reason for the poor results is of their biggest division (Corn) having sales down by 15%. There have been strong corn harvests in the US as of late which has resulting in a large inventory build up, so farmers are planting less corn this time round. One of the crops that is being planted more now is Soy Beans, which on a per hectare basis works out less profitable to Monsanto than corn.
GMO seeds and foods are controversial, with the more recent shot coming from the WHO. The report from the WHO says that "glyphosate" the active ingredient in one of Monsanto's herbicides is linked to cancer. Management say that the report hasn't impacted sales, they are fighting it and the report is at odds US and EU regulars stances on the product.
I dont see the pushback against GMO's going away anytime soon, I also don't see the need to feed an increasing global population going away either. CNBC Africa had a guest on this morning who said that 40% of Africa's children are not getting enough food on a daily basis; GMO will go along way to solving this problem. The yield on some African land is 30 times less than it is on land in the US and EU.
Given the expected 10% growth in EPS this year, the share is not cheap on a 23 P/E. I still see a great need for their products and they have built a solid "moat" around their business in the form of their brand with farmers and their annual spend on R&D.
Things we are reading
Via our mate Prof Mark J Perry comes some toilet humour. This is pretty weird, however there is some sort of connection between the end of communism and the beginning of the end in Venezuela: Venezuela Reaches the Final Stage of Socialism: No Toilet Paper.
One of the concerns with driverless cars is how they will handle being on the road with other driverless cars and how will they handle unexpected things happening - Crash-Testing Driverless Cars in a Robot City. The data from these tests will go along way in making better driverless cars and in the formation of the laws to govern them.
A crisis is not bad for everyone, in Russia owning a classified company is a good thing right now - This Guy's Russian Business Is Booming as the Economy Collapses
Twitters new app "Periscope" is making waves - Periscope's first update tackles boring feeds and notification overload
Home again, home again, jiggety-jog. I hope you are all rested over the weekend, the Lions snatched a comeback victory over the Bulls in the rain at Emirates Park. Amazing. The Easter Bunny managed to pull off the great heist again, how he/she does it is a mystery to me. White lies? The definition is that it is a lie told to avoid hurting someones feelings. I guess if you did not make them up in the first place, they would not exist. It is all about fun! Lastly, well done (very well done) to Paul, who smashed his PB at Two Oceans, managing a 4:39:59 for the 56km segment, which was harder over Ou Kaapse Weg this year, as a result of the damaging Cape fires. That is pretty darn fast and super well done.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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