Last week’s stock market positives included…
On the good side, the platinum strike appears to winding down. By taking restructuring pay packages, AMCU got a deal that allowed it to save face, while the mining companies are paying out about the same amount in total.
The real losers of the strike are the workers. They’ll never recover the wages lost due to their five months off.
In addition, I strongly suspect that we’ll soon see a series of retrenchment announcements from the mines as they use the damage from the strike as cover for a much needed rationalisation of the sector.
Just because the platinum strike is over, doesn’t mean the SA economy is in the clear
Before you take too much comfort from this strike ending, bear in mind that we’re likely to see yet another major strike next month. This time in the manufacturing sector.
I don’t expect another five month stoppage though.
Unlike platinum mining, which is limited to those locations which have the resource in the ground, manufacturing is far more mobile. In the last round of strikes in the motor manufacturing sector, the delays in production as well as the level of violence actually caused BMW to announce that it was no longer looking at South Africa for new facilities.
In other negative news, two of the three big ratings agencies, Fitch and S&P, gave their latest ratings for South Africa and it wasn’t good news.
We’re currently just a couple notches into investment grade. This means that if get a few more downgrades we’d no longer be investment grade. This is bad news because bond funds can’t hold non-investment grade bonds. This means these funds would effectively be forced to sell out bonds, causing a rapid drop in price and a rapid rise in interest rates. In addition, our currency would weaken. Hopefully the SA economy can turn a corner before this occurs.
With all this behind us, what can we expect from the stock market in the week ahead?
This week is a short one thanks to yesterday’s public holiday. But it’s still packed full of important data releases – especially tomorrow when our current Account balance, CPI and Retail Sales numbers come out.
The current account number will impact the rand. CPI is important as it’ll tell us just how likely SARB is to raise rates at its next meeting. And finally, our retail sales number will give us an indication of the strength of the local consumer.
Keep an eye on these announcements as they’re sure to have an effect on the stock market this week.
But it’s not just the SA economy who will see significant news releases this week
The UK will also release its CPI figures. The BoE’s Carney has been signalling to the market that he may raise interest rates sooner than anticipated. This is actually a positive for the economy as it shows that it no longer needs this extraordinary support. The stock market is another matter. Without BoE stimulus, we could see a pullback, not just in the UK but also in a number of emerging markets that have benefited from the BoE’s largesse.