The Week Ahead of 6 November 2018. Markets snap back

The US mid-term elections could have far-reaching ramifications for President Trump's actions over the next two years and could also have an impact on the US equity markets. Currently, the Republicans control the Executive (the Presidency), the Senate and the House of Representatives. If, as seems likely, the Democrats win the House of Representatives, this would tend to put a brake on some of Trump's more extreme policies. There is an outside chance that the Republicans could lose both the House and the Senate, in which case only the Executive would be controlled by the Republicans. While the anti-Trump fraternity would no doubt be euphoric about such an outcome, it could have some serious side-effects. Trump would undoubtedly be hamstrung in his efforts to further deregulate the US economy and implement further fiscal easing and this might leave him with no option but to intensify his trade war rhetoric against China and perhaps even the EU. Such moves would further dampen global trade activity and would be perceived negatively by global equity markets. Already there is mounting evidence that increased tariff activity is dampening global trade.

If the Republicans manage to hold onto the House and the Senate, expect US equity markets to rally in anticipation of the US economic recovery being extended beyond the 2010 US Presidential election.

It has been noted in this column some weeks ago that corporate insiders have been selling stocks into the very strength that was created by their own activity in large-scale share buybacks. Businesses have been holding back on repurchases during the last few weeks as they have been in one of their closed periods for buybacks, due to the imminent release of third-quarter earnings. Now that most companies in the S&P 500 have given their Q3 updates, closed periods have lifted, and the likelihood is that these buyers will return to once again support the market. The S&P 500 rose 2.7% during Tue and Wed last week, having dropped almost 10% and flirting with correction territory in the previous four weeks.

The JSE All Share Index (Alsi) snapped a long losing streak by rising by almost 7% between 30 Oct and 2 Nov. From its Jan 25 peak, the Alsi is now down 12%. The main factor driving this bounce was the massive rise in the share price of Naspers, increasing by 22% from R2370 to R2899 between Oct 31 and Nov 2. This once again highlights the huge degree of sensitivity arising from Naspers' weighting in the Alsi.

The US Federal Open Market Committee meets on Nov 7/8 and the consensus view is that there will be no change to short-term US interest rates at that meeting. But expect a rate hike at the next FOMC meeting in Dec and a further four rate hikes in 2019.

British prime minister Theresa May appears to have negotiated a deal with the EU that would allow the UK to remain within the EU customs union for as long as is required, while Britain secures trade deals with other countries. If true, this would remove a major stumbling block between the UK and the EU ie the Ulster/Eire border and would smooth the path towards a Brexit deal being signed before the end of Mar 2019.

Companies reporting this week

5 November 2018

Redefine Properties Final

8 November 2018

Indluplace Properties Final

Rebosis Property Final

Richemont Interim

Economic related events this week;

5 November 2018

Standard Bank PMI Oct

7 November 2018

SA Manufacturing Production Sep

SA Mining Output Sep

8 November 2018

US FOMC Meeting

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