You're listening to Strictly Business Podcast with Lindsay Williams. The JSC has closed its doors for another day, so it's time for the 5 o'clock shadow. And as always on a Thursday, I speak to David Shapiro from SAS and Securities and Viv Govender from RANS Swiss, except that this time our associate David Shapiro is tirelessly and selflessly going on a fact-finding field trip to the United States of America. So he's not available today, but we look forward to him coming back.
in the next couple of weeks or so. But Viv Govender is with us, and he has the stalwart that he is. And Viv, if I'd have said to you, 25 basis points down, 50 basis points down, and unchanged, and you had three central banks to choose from before the actual decisions, you had the South African Reserve Bank, the US Federal Reserve, and the Bank of England, which ones would you have assigned to those central banks? Because I got it completely wrong.
No, I thought the US was the only one that was going to do the half percent. And I knew we couldn't do half because basically, with regards to like being South Africa, being as small as we are, being as vulnerable as we are, you've got to always be cautious because if they were to come into South Africa and do a surprise like a half percent or something, the round would have weakened when we would have seen, you know, inflation, what is returned to the system, you know what I mean?
Because the weaker round means like all prices, special prices go up, et cetera, et cetera. So, yeah, we can't afford to be as aggressive as the Americans were. So I knew that once the Americans cut, whether it was quarter, whether it was half, we would have to cut a quarter only. With regards to the Americans, I was surprised by that. But I knew that they were the only ones that could do that.
I do think that, you know, what Chairman Powell did actually may have been slightly self-defeating just because of the fact that you saw the stock market end up negative yesterday. Yes, it's such a weird move, but obviously it's changed, but we'll come to that in a second. Why do you think it did that? I think it was the fear that maybe he sees something that we don't. I think the fact that he went bigger than he was supposed to or could have.
I mean, I think it was fluctuating between, you know, which was more likely, 50 or 25. And on the last day it was 50 was more likely. But I think the fact that, you know, 25 would mean such a possible number. and he'd gone to 50, meant that the market maybe might have thought, hey, this must be a bit overdone. And that might have been what caused things to come back down again. But you're right. I mean, in terms of the overall moment, it is going to be positive for the stock market.
Nothing else is happening. The stock market is going to rise when interest rates are cut. We saw that after 2008, we saw that during COVID, nothing pretty much moves the stock market like interest rates.
or taxes and taxes only occur once in a while so interest rates are the the big driver out there and cutting interest rates are going to make the stock market go up even though there was that little kind of weird movement at the start if i had been a technical analyst and i watched the the markets after the 50 basis points cut in the united states last night and they sort of gently went higher then i turned the television off and i thought well that's easy it's a nice steady day
but then i looked right at the end and they were slightly down and if i as i said i've If I'd been a technical analyst, I would have said that's a reversal pattern, and that is negative for the short term. And here we are today, Viv, all-time record highs on the S&P, up around about 1.6%, an extraordinary move to the upside. Yeah, look, I think once people got over the initial kind of surprise and whatever, I think, like I said, lower interest rates, positive with the stock market.
But actually, as a technical person, I mean, we have a guy that's like going to this kind of stuff, and he always says the first move is almost always wrong. You'll make much more money by going against the first move than the other way around and disappointing the first move. So you see this market spike up, just go the other way. If you see it fall, go the other way. And usually you'll end up more right than wrong. And so that's the weird thing with the technical guys.
They do have this kind of like feeding for the way the market moves that is not quite related to logic, but more often than not, it's right. It's the OPEC principle.
If I was an oil trader, which I am a frustrated oil trader, I would say okay i'm looking for the opic decision it's going to cut by two million barrels a day and the market spikes up i always say well there's a reason that that it's cutting it's because demand figures their books are looking a little bit dodgy and it will eventually come down after after a couple of a couple of days or so so i suppose the same principles apply i hope your technical analyst makes a
good deal of money for you viv elsewhere not much going on and we've got it all out the way now i mean there's so much central bank activity the price of money is coming down Inflation in certain jurisdictions is slightly stubborn. For example, core inflation in the UK is 3.6%, which is much higher than the 2.2% CPI. But generally set fair for the last quarter of this year, I think. Yes, I do think that we are seeing core inflation remain sticky both in the US and in Europe as well.
And I do think that that is an issue to be concerned about. We've benefited a lot from the fact that oil prices are as low as they are right now. which kind of takes a lot of this thing out of uh you know uh inflation uh but um I think that if you just looked at some of these factors out there, like wage inflation coming through, including in South Africa, that's really the long-term inflation rate. It's wage inflation. All prices go up and down.
You see the commodity prices spike up and come back down again. But wages never, ever come back down. If the oil price went from here to 200, and therefore people had to go and ask for wage increases, if the oil price was to fall from 200 back to 70, they are not going to give back that money. You know what I mean? And so that is the one thing to be concerned about. Right. We've kind of built in some expectations around inflation over the last several years.
And that's going to be the hardest thing to break from people's minds. The fact that, yeah, you've gotten like two to five percent increases over the last three, four years. This year you're going to get no increase. You know, it doesn't quite work in people's minds like that. It's interesting as well, because some suppliers of goods in particular, when there's inflation and when there's supply chain issues, they're very quick, almost a little bit too quick to bump up the prices.
of whatever product it is. But very, very slow to bring them down. It's the same with interest rates. Your mortgage rate goes shooting up, but it doesn't come down quite as quickly, which is, I don't know if it's profiteering or whatever, but certainly that seems to be a phenomenon. Let's have a look at some prices now, Viv, before we get onto other matters. Dollar Rand, nice and steady. It's 1748. The British pound against the Rand, 23.17. The Euro Rand is 1946.
The Euro dollar... 1.1130, not quite as dramatic a reaction as one might have expected given 50 basis points last night. As we've been speaking of, British pound against the US dollar, 1.3260. Gold price is 25.81, which is $10 higher. Platinum is up 15 to 9.90 and Palladium is $17 better at $1,085 per ounce. As for the other ones, the slightly more important ones for the world, that is. Brent crude oil continues its nice run, $74.46, up 1.1%, and West Texas, $71.63, up just over 1%.
Natural gas down a bit. What else have we got here that's important to South Africa? Copper price continues to do well, up three-quarters of a percent, at $4.27 per pound. Now then, the aforementioned S&P 500. The December futures.
currently trading just over one and a half percent higher at 5767 the old high was around about 5730 up until today and now it's sliced through that very nicely indeed thank you very much the us 10-year treasury bond let's call it 3.73 percent and the south african tenure after the reserve bank cut rates is just hovering let's call it exactly nine percent which is Pretty decent move for the yield to the downside. What else have we got? Oh, Bitcoin, yes, of course. Mustn't forget that one.
Gosh, a big move there. Nidhi, 6% higher. 62,900 risk assets. Very much in play today, Viv. How do tech stocks, high-growth tech stocks and AI stocks react to an interest rate cut? Are they as sensitive as other stocks? Yes, in some ways more so. Because remember... If you have lower interest rates, it means the discount rate for future earnings goes down.
So if you basically say, I'm going to give you a billion rounds next year, and the interest rate is at 10,000%, it's worth a lot less than if I say give you a billion next year and the interest rate is 1%, you know what I mean? Just because of the interest rate discount that comes through because of that. And the fact that we are seeing AI stocks are obviously all about future growth. We're not getting much money right now unless you're Nvidia. Everybody else is talking about future money.
When interest rates fall, that future money becomes more value relative to current values and therefore should be positive for these companies. It's not just AI companies or growth companies, it's growth countries as well. Technically, you should see emerging markets do better than developed markets because of lower interest rates as well. Good. So the market is stabilized because we've had a couple of two or three dodgy weeks compared to the stellar performances that we've become used to.
But they have settled down now and people are regaining their confidence?
i i don't know what stabilization means i mean nvidia is up like five percent today yeah this is the i remember the the i was i would bet you five percent in nvidia is worth more than everything but a hundred companies in the world you know what i mean yeah you're looking like a uh you know you're talking like a huge amount of market capitalization that has been added to your venture yeah yeah yeah and look at it like tesla is up six percent today you know In fact,
I'm doing an AI presentation in a few hours. I'm just going to see if my assistant can actually help me with this and rebalance it because it's going to look a lot better right now than it did when we first did the thing, okay?
But yeah, it's amazing just how strong some of these AI companies are looking at the moment just because, like I said, they're going to benefit more than anyone else because of the fact that they are going to benefit from the fact that we are seeing these companies which are going to have growth in the future, hopefully, you know, having those growth being less discounted than it is currently. Very good. Yeah, that is a big move, 6% for Tesla.
And more importantly to me, anyway, the NVIDIA move of 5%. And who knows what the next few hours will bring. So good luck with it. Keep on changing your allocation and everything for your presentation. A quick look at South Africa, because I know we've both got a dash. Bytes Technology. These prices may be slightly out of date, but Bytes up 8.6%. Impala Platinum, 5.7% higher. DRD Gold, another digger, up 5.25%.
And Anglo-American Platinum, to complete the three of the top five, Anglo-American Platinum up 5%. This was 5.15 just over a week ago, Anglo-Platinum. Now, 596 Rand per share. It's a really big move to the upside. As soon as Anglo-American announced that corporate activity, I mean, I said to a commentator, I said, surely this looks like capitulation. Surely this is a buying opportunity. And for once in my life, I was right. It's bargain hunting, I suppose. But anyway.
In a short-term move, yeah, it makes sense. But, I mean, the problem I see with these platinum producers is, what's the future? You know, you're going to have these short-term balances up, but the future looks so terrible for them. It's like all their factors that are supposed to help them or whatever are working against them. So, it would be negative about platinum going forward in South Africa, unfortunately. Yeah, I think a lot of people are. I mean, it's a long way to go to the 2250.
a ramp a share for anglo-american platinum a long long way yeah it's got to go up for four times almost downside alpha min down three and a half lighthouse capital down two and a half rem grow down 2.2 british american tobacco one and three quarters percent in the red and aeci down one and two thirds percent if you did have to invest in south africa while i get the indices uh having had the initial A sabre rattling from the South African Reserve Bank, in other words,
cutting rates and maybe three or four in the next six months or so. Is there any particular sector that you think will benefit? Financials and retailers may be the obvious ones. Yeah, I think maybe it's on the miners as well. Look, I do think that if we are getting our house in order, and it seems that we are, the GNU, despite the very low expectations going into it, seems to be working a lot better than people have been thinking. And if we can get Translate working, get the ports working.
The impact of companies that are exporting commodities should be positive because we saw Kumba being affected by the fact that it could not get stuff out of the plot quickly enough and therefore to reduce production. We saw electricity obviously production under a threat in South Africa because of load shedding. And yes, the Reserve Bank government was correct in mentioning the fact that we are seeing high strides in electricity being way above inflation.
But I'd rather have electricity like 40% more expensive, but guaranteed as opposed to current prices. I mean, like they have power going out every day or every second day. If those things can be solved, and like I said, it comes with a cost. Yeah, SA Inc looks very attractive. One might even look at some SA property that looks interesting at the moment.
So if the current trend with the GNU continues, there's a lot of stuff in South Africa that just has fallen so far behind that they look incredibly cheap. I mean, banks... unbelievably cheap compared to international benchmarks. I mean, if you look at some stock which keeps on coming across my desk, it's called ABSA, and they give me the P-E ratio, both current and forward, and the dividend yield. It really is something that you don't see overseas when it comes to the financial services sector.
Oh, yeah, no. What's it like? It's still the dividend yield is still above the P-E ratio, despite the fact that this thing is up, I don't know, in the last, say, year, you know, quite. not much, it's about 2% this year, but from the lows of this year it's up, you know, 25% from where it was in April.
And yet we are still seeing, this is from after the election, of course, we are still seeing, you know, P ratios under 8. dividend yields almost eight yeah a very compelling argument even after the rally that you just described from the lows okay the indices look like this the financials which we've just been speaking about actually relative laggards up 0.4 percent industrials up 1.4 percent the resources 10 index a 1.7 percent gainer top 40 1.1 percent higher at 75
703 and they all share the overall index before the auction i must say but anyway it gives you an idea 1.1% higher as well to 83,652. Viv Govender is from Rennes, Swiss in Johannesburg, and that was the 5 o'clock shadow. The views and opinions expressed in these podcasts are those of Lindsay Williams and various contributors and do not reflect the policy, position or opinion of any other agency, organisation, employer or company associated with StrictlyBusinessPodcast.com.
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