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Weekly Market Focus - 26 August 2019

MARKETS

WEEKLY FOCUS: Short term equity price gains depend on multiple expansion                                   26 August 2019
 

 

Companies within the S&P500 have reported financial results for quarter 2 2019 and the growth compared to last year has been encouraging in spite of the stellar performances of 2018. Sales has grown by 5%, earnings by over 3% and margins rebounded to 12% even if they remain below the 12.6% peak of quarter 3 of 2018. Home Depot and Target were the stand out performers last week after beating earnings estimates. 

 

For the coming quarters, results will be compared against even higher performances of a year ago and hence earnings growth can remain soft. It is estimated that if there is no dollar appreciation and no dramatic fall in energy prices, earnings growth for this year will be close to a modest 2%. With valuations close to 25 year averages and a weaker macroeconomic environment in Europe, future gains in share prices will likely originate from an expansion of price/earnings multiples.  

 

With this in mind, investors looked up for clues from the US FED Chair at last week’s Jackson Hole symposium during which it was reiterated that the central bank stands ready to act to prolong the cycle but at the same time said it is close to meeting its dual target of inflation and employment. There was more support from the European Central Bank which indicated a stimulus package is on its way and Germany’s Merkel also advocated for a long overdue fiscal spending program to revive the ailing economy. In Asia, the Chinese announced targeted interest rate cuts to spur domestic consumption even if they remain wary of real estate bubbles.

 

The bad news of the week was obviously the ongoing trade tensions after China announced tariffs on USD 75 billion worth of US goods including a 25% hike on the automobile sector last Friday. The US retaliated with tariffs on some USD 550 billion worth of goods.

It seems evident that the next leg up in equity markets is now heavily reliant on stimulus measures from the ECB as well as fiscal stimulus in Germany. 

 
  Value Week YTD

Equity Indices

 

 

 

S&P500

2,847

-1.44%

14.54%

S. Africa

3,264

0.32%

0.52%

Stoxx50

3,334

0.16%

11.09%

FTSE100

7,095

-0.31%

5.36%

DAX

11,612

0.42%

9.97%

CAC40

5,327

0.49%

13.85%

SMI Index

9,745

0.17%

15.61%

FTSE MIB

20,474

0.74%

11.73%

Shanghai Comp

2,897

2.61%

16.18%

BSE Sensex

36,701

-1.74%

1.73%

Nikkei

20,711

1.43%

3.48%

Major currencies

 

 

 

USDZAR

15.25

-0.35%

5.70%

EURUSD

1.11

0.49%

-2.57%

GBPUSD

1.23

1.06%

-3.37%

USDCHF

0.97

-0.38%

-0.98%

EURCHF

1.09

0.10%

-3.58%

USDJPY

105.41

-0.91%

-4.42%

EURGBP

0.91

-0.56%

0.80%

USDAUD

1.48

0.37%

4.25%

Dollar Index

97.53

-0.49%

1.63%

Commodities 

 

 

 

Brent

59.34

1.19%

13.68%

WTI Oil

54.17

-1.28%

19.50%

Copper

 2.53

-2.50%

-5.52%

Aluminum

1,768.75

-0.57%

-2.96%

Platinum

860.25

1.04%

8.86%

Sugar

11.47

-1.46%

-7.43%

Corn

359.75

-3.03%

-4.19%

Coffee

92.60

-0.27%

-8.27%

Gold

1,537.60

0.92%

17.04%

Cotton

58.18

-3.54%

-19.50%

Sovereign Yields

 

 

 

US10Y

1.53

(0.03)

(1.18)

UK10Y

0.48

0.02

(0.79)

Germany10Y

(0.68)

0.01

(0.91)

 

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