Markets: Brent crude below $100 provides relief

0:00You're listening to the Money With, SAFM Market Update podcast. As always, that's where you kick off the show with a sense of what's been happening on the market's front. I'm drawn on the line by the head of investment research at FNB Wealth and Investments. Shantel Marx to take a look at market movements and see what to make of them. Shantel, lovely having you on the show as always. Thanks so much for taking the time. The Rand fighting fit this Tuesday. We were in some interestingly scary territory towards the latter part of last week, almost at 1670 at one point. I thought we were going to see the dreaded 1690 or even 17 Rand, but we're back at 1653 against the US dollar. A softer oil price benefiting the Rand there, but also against other major currencies. The Rand just seems to be fighting back. Yeah, absolutely. And it's because of the external factors, as you mentioned, the oil price coming down a little bit, but then also some internal factors that really is supporting the Rand right now. I think in the context of the debt chaos that we've been seeing globally, bond yields,

1:02spiking in the developed world specifically and spiking quite hard. South Africa's fiscal position is looking quite solid, even though we have a higher oil price, even though precious metal prices have started coming down, we still have terms of trade that is quite supportive and that is very important for the Rand. And of course, we have those structural reforms that are still working very slowly towards a conclusion in the background. So I think because we are, but less externally focused and there are internal things to be positive about, the Rand really holding its own in a very volatile environment. Shantalkan, we take a look at equity markets. Barring, of course, the closure from Chinese markets for National Day, other markets in the green Asian markets, European markets, US markets, local markets, it seems that oil reprieve is definitely what equity markets are looking forward to and what they are desperately in need of because every time we dip below $100 a barrel, all equities seem to rally regardless

2:04of what sector we're looking at. Yeah, absolutely. And I mean, in the South African markets, it's very clear what a lower oil price means for the more discretionary type of stocks. If you look at some of the best performers today, two words, for example, pip-core, we buy cars, the ones, not the needs, really performing well. And really that is a expectation that hopefully low oil prices will result in lower fuel prices. There'll be some relief on consumer wallets and they'll be able to invest more in those ones and not simply focus on the needs, which are to get to work, to get your kids to school and to buy food. And I'll tell those needs are ongoing for consumers and they're only going to get worse with the fuel price increase that as we know is said to kick in midnight tonight. A steep increase this time around markets, I suppose, no real way of reacting to that, but we'll feel it later on in terms of consumer spend and disposable income, as you mentioned.

3:08But I want to take a look at the local equity markets. Financial stocks rallying quite a bit as well today. And I'm half percent yesterday they were down. They were still a bit of, I suppose, negative sentiment around where markets found themselves with oil price still around that $100 barrel level. But financials are a good indicator of some sign of recovery and some sign of optimism in local markets, especially from a performance perspective. Yes, so financials generally are very heavily impacted by South African bond yields. And so the African bond yields have come down and yields are the inverse of price. So if yields are coming down, it means that bond prices are moving up. And that is a positive thing from an essay ink perspective. So because those prices are going up financial financial shape prices are going up as well. And then also when we see a stronger round, we also tend to see a positive impact on the financial sector. But I think the biggest story in financials today really was Sun Lam's decision to buy

4:12our minority shareholders in Sun Tam. So Sun Lam was a almost 70% shareholder of Sun Tam to begin with. And we've been waiting a very long time for them to pull the trigger here. But yeah, they are buying their general insurer and it's expected to be earnings accretives are positive or profitability as well as returns accretive for Sun Lam investors. And if you look at Sun Tam, prior to the news breaking, that share price was 24, 25% below where it is right now. So a really good outcome for Sun Tam shareholders as well. And a much easier business or much cleaner business by the end of it. Because from what we understand there, of course, this would then mean that Sun Tam would potentially be delisting going forward and Sun Lam would remain as a listed business. I suppose it was inevitable. It was something that we, when you own 62% or so of a business at some point minorities

5:16will need to have a conversation whether it's comfortable or not. Sean Talbiff, I want to get your thoughts on the remainder of the week. We have some data coming out of the US. We received some data last week. We're in the midst of kind of and preparing for that last quarter of the year. And we know that we've still got Q3 earnings out of the US to come with an expected interest rate hike before the end of the year. Markets at the moment seem to be a little on edge. Is there some glimmer of hope that you're seeing in the markets or is it still largely dependent on what happens in the oil space? Yeah, I think we're going to be very much oil driven, particularly where it comes today, today, today trade. But that said that that a ishomatic is still powering ahead and those earnings numbers that are going to probably come out of the US kind of hyperscalers, the chip stocks, the memory stocks, all the rest of them are expected to still be very, very strong. And what we saw in the second quarter was a broadening out of that.

6:20By broadening out, I mean, you're supposed to be sainted on the tech space. But we started seeing positive sentiment filtering into the rest of the US economy that growth thrust filtering into the rest of the US economy. And that's really had a positive impact on US economic growth, US consumer sentiment, US business sentiment and on earnings more broadly. We've even seen it broaden out to outside of the US with really strong growth numbers coming through from European stocks, Japanese stocks and all the rest of it. So there could be a positive thrust as we get into the third quarter reporting season. But yeah, I mean, the day to day is still going to be very much oil price driven. And I think in the South African context that oil price is going to be probably the most topical issue for us going into the last quarter of the year. And a busy quarter promises to be if the rest of the year is anything to go by, hopefully we can find some break at the end of the year.

7:20But of course, time will tell for now. Leave this conversation on that note. Head of investment research at FNB Wealth and Investment, Strental Marks joining us to take a look at markets. Parts out.