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Weekly Market Focus 14 January 2019

Markets

WEEKLY FOCUS: Negative short term sentiment but fundamentals are strong                                   14 January 2019
 

 

Since the 20% drop in equities prior to Christmas the main question has been whether we are at the start of a bear market? On current evidence this is not the case as there has been a rebound of 10% so far during 3 consecutive weeks. It is also noteworthy that the rise has been broad-based. Fundamental data remain supportive as leading indicators of growth show that there is no recession on the cards for the medium term. Also measures of demand continue to point towards an expansion, although the pace of growth is bound to be slower, since the comparative base effect is steeper due to the strong 9 consecutive quarters of strong GDP growth.

 

According to Factset data, the blended earnings growth rate for Q4 2018 for the S&P500 is 10.6%. This is a decrease from Q3 2018 but remains nevertheless a strong performance based on long term trends. The rise in annualized volatility across sectors and adverse sentiment can be attributed in part to the actions of the Federal Reserve which has indicated it will tighten rates for a few more quarters at a time when the economy is slowing sequentially. The chart above indicates that the correlation between the balance sheet of the FED and the S&P500 since September 2018 is 87%. As recent speeches of FED governors have been more dovish, it is likely that this headwind to long term sentiment will dissipate during the coming quarters. While a retest of recent lows is possible, fundamentals point towards new highs this year.

 

In Europe, data from Lipper shows that Q4 2018 earnings growth is forecast to be 7.6% for the Stoxx600. As sectoral divergences are apparent and will likely remain, investors should exercise caution in stock selection.   

 

 

 

 

 

 

 

 

 

 

 

Value

Week

YTD

Equity Indices

 

 

 

S&P500

2,596

2.54%

4.45%

S. Africa

3,344

2.87%

2.99%

FTSE100

6,918

1.18%

2.74%

DAX

10,887

1.11%

3.11%

CAC40

4,781

0.93%

2.19%

Swiss Mkt.

8,828

2.55%

4.73%

FTSE MIB

19,290

2.43%

5.27%

Shanghai Comp

2,554

1.55%

2.40%

BSE Sensex

36,010

0.88%

-0.19%

Nikkei

20,360

4.08%

1.72%

Major currencies

 

 

 

USDZAR

13.84

-0.91%

-4.12%

EURUSD

1.15

0.65%

0.27%

GBPUSD

1.28

0.90%

1.07%

USDCHF

0.98

-0.23%

-0.01%

EURCHF

1.13

0.42%

0.20%

USDJPY

108.55

0.02%

-1.57%

EURGBP

0.89

-0.31%

-0.88%

USDAUD

1.39

-1.30%

-2.35%

Dollar Index

95.27

-0.51%

-0.73%

 Commodities 

 

 

 

Brent

60.48

5.99%

15.86%

WTI Oil

51.59

7.57%

13.81%

Copper

2.66

0.57%

-0.75%

Aluminum

1,813.50

-0.51%

-1.77%

Platinum

813.80

-1.56%

2.98%

Sugar

12.78

7.12%

3.15%

Corn

378.25

-1.24%

0.73%

Coffee

103.85

2.21%

2.87%

Gold

1,289.50

0.29%

0.51%

Cotton

72.52

0.06%

0.35%

 Sovereign Yields

 

 

 

US10Y

2.70

0.03

(0.02)

UK10Y

1.29

0.01

0.02

Germany10Y

0.18

(0.02)

(0.05)

 

Contact us: Durban +27 (0) 31 566 3365 | CPT +27 ( 0 ) 21 851 0920 | JHB +27 ( 0 ) 11 017 7230 | Email: enquiries@pegasuswm.com

Disclaimer: The research report has been prepared for information purposes and does not constitute an offer. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and the company accepts no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this report.
 

 



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