Global Markets

International stock markets saw a good rise over the first part of the week, with markets rising around 2.5% and close on Wednesday with the FTSE trading around the 5500 levels. Lower oil prices aided markets, along with good gains from miners after the unsolicited £5bn bid by Exstrata for Lonmin, better than expected earnings from BNP Paribas and higher than expected housing sales in the US all pushing the markets higher on Wednesday.

Thursday saw a different picture, with the Dow Jones coming off its six week high, pairing gains from Wednesday and financials suffering. This after AIG announced a loss of $5.36bn and Citigroup, the world’s largest bank by asset, ordered to pay a $100mn fine and aid clients to get out of trades, after selling them auction-rate securities.

Unemployment figures in the US also spurred losses, reaching the highest levels in six years. Both the ECB and Bank of England left rates on hold at 4.25% and 5% respectively. Hawkish comments from ECB president Jean-Claude Trichet also dented confidence in Europe towards the close on Thursday.

Local Markets

Given our local currency, it seems some form of sense is beginning to come to the fore. A bit harsh I suppose, but as previously indicated, the fundamentals do not support the strength we have been seeing of late. The market has, for a while now, been questioning the sustainability of our currency. The ZAR depreciated 3.4% against the USD this week as political uncertainty re-emerged (due to the nationwide COSATU strike) as well as an easing in the net foreign currency inflows. The short term outlook of the ZAR hinges on the interest rate decision to be announced on Wednesday the 13th, which is widely expected to be unchanged at 12%. We expect a test of the 7.50 and 7.59 levels, respectively, in anticipation of a weaker ZAR.

  On the share market, Nedbank reported a 6.8% increase in diluted headline earnings per share for the first six months and maintained their interim dividend at R3.10. Old Mutual results on the other hand, were worse than expected and the market reacted by pushing the stock lower by 7% on the release. Exstrata’s bid for Lonmin certainly sparked some interest across the platinum sector this week. The offer, a 42% cash premium, saw Lonmin’s share price soar to R496.00 or 49.4%. Lonmin has subsequently described the offer as “opportunistic and entirely unwelcome”. Merger and acquisition activity is not entirely unexpected, given current market conditions, and we will be following this theme closely.

  Amidst high volatility and after an 1800 point range for the week, the ALSI ended the week relatively flat (at the time of print). The biggest movers for the week were: Lonmin up 52.2%, SAB Miller up 11% aided by the weaker rand, Tiger Brands up 8%, Harmony down 13%, Kumba down 7.5% and African Rainbow down 6.6%.