Going into the MPC meeting this week we knew that there was a chance of a rate cut, but the odds seemed slim. It seems that there was more than just a slim chance, because all five members of the MPC voted to cut interest rates by 25 basis. The first thing to do after an interest rate decision is to have a look at the SARB’s forecast for inflation. Even with yesterdays interest rate cut, inflation isn’t expected to go higher than 4.9% over the next two years. Reading that, you can assume that more interest rate cuts are on the cards.
The big unknown at the moment is how the Rand will react if/when we get downgraded in March. More than likely the Rand weakens as a knee-jerk reaction, but then what? According to economists, the Rand is already too weak. If that is the case, a further weakening of the Rand should be short lived? According to the SARB, a rating downgrade would be considered a ‘shock’ to their forecast. What that means is that their forecast does not include a debt downgrade. That makes sense, it is not their job to try to preempt a debt rating calls. It also means that if the Rand falls out of bed permanently, and pushes inflation higher, further rate cuts will be off the cards.
On the news of the cut, the JSE moved from red to green. The Rand weakened slightly, but not much. The Rand is back at the same level as Thursday morning, and still stronger than it was on Monday and Tuesday. Our economy desperately needed some form of relief, and this cut helps in a small way. Now it is time for our leaders to implement the hard to swallow reforms needed to make our economy more efficient.
Yesterday the JSE All-share closed up 0.17%, the S&P 500 closed up 0.84%, and the Nasdaq closed up 1.06%.
This morning Richemont released a trading update for the quarter ending 31 December 2019. Total sales increased 6% for the period. Europe grew by a solid 10% while Asia lagged a little, growing by 3%. That was because of a large contraction in Hong Kong. Americas grew 9%, Japan contracted 1% and the Middle East and Africa grew by 6%. Online retail grew by 8% and now represents 18% of group sales.
The Richemont share price first hit R100 a share in 2013. It currently sits at R115 a share. That is not good by any means (especially in Rands) but is much better than a lot of other South African stocks which have fallen on hard times. Unfortunately, their biggest competitor, LVMH has thrived over the last 5 years. Booze and handbags have done better than watches and jewellery.
However this is a world class global business that we are lucky to have access to on the JSE. We still recommend holding it in JSE portfolios.
Our 10c Worth
One thing, from Paul
The Wall Street Journal is reporting today that Facebook management has decided to avoid putting ads on WhatsApp. That’s great news for all of us using the service (more than 1.5 billion people around the world).
You might recall that Mark Zuckerberg swooped on WhatsApp in 2014, paying $22 billion to acquire it from a small group of nerdy founders lead by Jan Koum and Brian Acton. Those guys quit 18 months ago when rumours of a commercial strategy emerged. According to the WSJ, the team working on the project to integrate ads into our conversations and status posts has been disbanded. Hooray!
WhatsApp was only created in 2009 and initially made money from a download charge and then a $0.99 annual subscription, but Facebook made the platform free after acquiring it.
For now the focus is on building out money-making features which allow businesses to communicate with customers on WhatsApp. That makes good sense. I have seen banks and utility providers that use the platform for solving customer problems. Corporate users can also set up customer groups, and that sort of thing. They are also testing projects related to payments in India, where WhatsApp is also very popular.
Keep in mind too that Facebook is currently developing a single messaging database for all of its user interfaces. In many countries (including the US) more people use Facebook Messenger to stay in touch than WhatsApp. With so many users, keeping everything running smoothly all around the world takes some serious server engineering. We just send messages to our loved ones and take all that for granted. What a gift to humanity!
Facebook takes a lot flak from politicians and pundits, but its underlying advertising business is thriving. Over the past 12 months, Facebook shares are up more than 50%, twice the gains of the S&P 500. It closed last night at $221.77 per share, which is very close to its all-time high. We are happy shareholders.
Read about the WhatsApp developments here (may require a registration or subscription). Facebook Backs Off Controversial Plan to Sell Ads in WhatsApp
This week on Blunders 169 – Boeing and Nissan
Originally when I saw this headline – A Lithium-Ion Battery That You Can Scrunch – I didn’t think much of it. Then I started to think about the practical applications of having a foldable battery. As the world becomes more digital and connected, we are going to need batteries even more.
This foldable battery can be as thin as 0.5mm. That means it could probably be incorporated into clothing, which could power a host of things. What about clothes with built-in air-con or heating? Alternately, it could power portable medical devices. I look forward to seeing what innovators will do.
The Tesla Model Y prototypes have been spotted at the Tesla head office in the West Coast. The Model Y is a crossover version of the Model 3 and funny enough both cars share about 70% of the same parts. What the two cars are going to have in common is the high demand, thanks to their price point and affordability.
The Model Y battery pack can do up to 300 miles in terms of range, and the company is going to be conducting numerous tests in California’s public roads. The Model Y is going to be a bit smaller than Tesla’s current 7- seat interior SUV the Model X. Think of the Porsche Cayenne and the Porche Macan when it comes to size comparison.
Elon Musk, expects to start the production of the Model Y by mid-2020, which means the design team has a few months to finalise the look in order for the production team to hit the ground running. Below is the picture of the Model Y prototypes next to the Model X.
Linkfest, Lap it up
Here is another exciting development in the medical space – A machine can now keep livers alive outside the body for a week.
It seems that the thing we are most interested in is entertainment. Thanks to the TV series, the Chernobyl disaster also makes this list.
You will find more infographics at Statista
This morning Chinese GDP data came out in line with expectations, their economy showed growth of 6%. Later today there is UK retail sales and EU CPI data. The Rand is around $/R 14.40 this morning.
Sent to you by Team Vestact.
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