Early on a Monday 11 August 2014 THE WEEK THAT WAS Aftershocks?? No, it wasn’t the aftershocks from the worst earthquake to hit South Africa in 40 years that went through financial markets last week, but instead, the recent rally in asset prices have left markets vulnerable. Geopolitical risks have been testing the camel’s back as good news from the US company earnings reporting season faded. The Ukrainian crisis escalated and more sanctions were imposed on Russian. In retaliation, Russian banned imports from the European Union. On Thursday, US President Obama authorised air strikes on Iraq to prevent acts of genocide. This send demand for safe haven assets soaring with gold and US Treasuries benefitting the most. In stark contrast to geopolitical risks, the US economic outlook brightened over the last few weeks. Following on the stronger second quarter GDP data, manufacturing data continued to improve, factory orders firmed and unemployment claims reduced further. Chinese economic data also continued to improve, albeit gradually. Chinese exports accelerated in July on the back of strong demand in the US. African Bank sent shockwaves through the local market last week as the unsecured lender bucked under the pressure of reckless lending and deteriorating economic conditions. The bank announced the resignation of its founder and CEO together with the need for further funding. From the peak a little bit less than 2 years ago, the share price has lost 98.9% of its value, trading at a mere 43 cents today. The group’s furniture business was put in voluntary business rescue. It’s a sign of tough times locally and was confirmed by a survey of business sentiment which slumped to a 15 year low. Furthermore, Eskom is also in a funding crisis, facing a shortfall of R225bn over the next three years. The Bank of England and the European Central Bank both left monetary policy unchanged at their meetings last week, but the ECB warmed up to quantitative easing as they left the door wide open for potential asset purchases should the threat of deflation intensify. After a few months of gradually inching higher, financial markets gave investors a reality check by bring back some volatility over the last three weeks. Last week, the local market had to contend with the rapid decline of African Bank, whose share price sank by 92.5%. The FTSE/JSE All Share Index lost only 0.7% as it was dragged lower by the 1.3% decline in the financial sector. Gold shares bucked the down trend and gained 3.7% on the back of a firmer gold price. Gold acted as a safe haven amidst renewed geopolitical tension and gained 1.3% to $1,307. The price of oil gained amidst news that the US authorised air strikes on Iraq. Global equity markets stumbled during the week with the Japanese Nikkei delivering the worst performance as the Bank of Japan failed to introduce additional stimulus measures.
Posted on: Mon, 11 Aug 2014 06:59:43 +0000
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