South Africa

Trading Day – Markets surge

US markets had the strongest trading day in months after headline inflation came in at 7.7%, lower than the 7.9% expected by economists. The S&P 500 closed 5.5% higher, and the Nasdaq climbed 7.4%.

Asian markets followed in the strong momentum. The Nikkei 225 is up 3% in early morning trade, while the Hang Seng index rose 7.5%.

Locally, Richemont reported strong interim earnings, except for their discontinued operations. The company saw a 24% increase in sales and headline earnings per share (HEPS) of €3.40.

Meanwhile, EasyEquities parent, Purple Group, expects a decline in earnings of between 10% and 20% to around 3.79 cents.

Here is the biggest news of the day.

  • Markets surged following positive US Inflation numbers. The consumer price index (CPI) increased 7.7% from last year, lower than the 7.9% forecast by economists and the smallest increase this year. Month-over-month it increased by 0.4%, the same as in September. Core inflation, which strips out the more volatile food and energy prices, rose 6.3% from last year and 0.3% month-over-month, half the increase experienced in September. Increased housing costs accounted for more than half of the increase in prices. Housing is a lagging contributor to CPI due to the way owners-equivalent rent is calculated. Market participants viewed the release as proof that inflation might be trending down over the long term and that it might open the door to a Fed pivot. Following the news, the S&P 500 climbed 5.5%, and the Nasdaq rose 7.4%.
  • Richemont reports strong interim earnings with the exception of their discontinued operations. Sales increased 24% to €9.7 billion. The company saw a 1.4% increase to its already large gross margin, increasing to 68.9%. Headline earnings per share (HEPS) increased from €2.18 to €3.40. However, basic earnings per share (EPS) came in at a loss of €1.34, largely due to a €2.9 billion loss from discontinued operations.
  • Northam and Royal Bafokeng Platinum (RBPlats) fight over executive compensation continues. In April RBPlats concluded new fixed-term contracts with its CEO and COO that led to an accelerated vesting of their share compensation. Northam filed a “frustrating action” complaint with the Takeover Regulation Panel (TRP) in terms of the Companies Act. The claim was dismissed, but Northam successfully appealed the decision with the Takeover Special Committee (TSC). RBPlats issued a statement, saying they believe the ruling is “both legally and factually flawed” and that are engaging with advisors regarding the recourse available to them.
  • EasyEquities parent Purple Group expects a decline in earnings. The company expects earnings per share (EPS) for its annual results to be between 10% and 20% lower, coming in at an expected mid-range of around 3.79 cents, compared to 4.46 cents per share last year. Headline earnings per share (HEPS) is expected to decrease around 72% to roughly 1.22 cents. The result is driven by losses from the Emperor Asset Management group and EasyEquities profit before taxes dropping to roughly R80 million, from R98.1 million last year. Trading arm showed improved performance, turning from a loss to a profit of roughly R14 million.
  • Transaction Capital sees a divergence in expected headline and basic earnings. Headline earnings per share (HEPS) is expected to increase more than 50% to roughly R2.20, while basic earnings per share (EPS) is expected to decline more than 30% to roughly R2.29.
  • Warren Buffett has sold more than half of long-time holding US Bancorp. Berkshire Hathaway disposed of over 66 million shares in the company, reducing the weight in their portfolio from 1.8% to 0.7%.