Read our traders’ take on the markets, the global economy and what to expect in the week ahead.
South Africa’s JSE And Gold Miners Drop Sharply On Fresh Labour Market Strike Fears
The JSE and its gold mining components Fresnillo, Rangold Resources, Anglo Gold and Anglo Platinum shares today have been hit on the back of wage hike demands and gold futures dropping sharply. The sliding price of precious metals has the pressured the South African market and fears about another unwanted flare-up this year in the mining labour industry has rattled investors again.
Over the weekend, the National Union of Mineworkers [NUM] were reported to be seeking pay rises of up to 60% from gold and coal producers from the country’s mining companies, threatening strike-action which could see a repeat of last year’s rife in the labour market. The timing of these wage-increase demands is particularly worrying as gold prices have tumbled, down around 19% year-to-date and have declined more than 7% this month and near 8% last month. Last year, violence over labour strikes across the region cost mining companies billions of Rands in revenues and production, prompting the closer of mines and hampering demand for metals like gold. Labour accounts for up to 60% of costs for mining companies already.
Worries that a similar episode will play out has investors on edge as mining companies are not in a position to meet the demands of pay hikes due to the falling price of gold together with the hit to earnings faced by last year’s labour strikes. Talks between the union and miners are likely to be heated given the current backdrop of falling gold prices and rising production costs at mines. Last year, wildcat strikes left 50 people dead and violence across the mining labour market.
At the same time, the recovery in the US economy and relative comfortablity with the Federal Reserve tapering quantitative easing diminishes the “safe haven” label as investors pile on appetite for risky investments such as equities. Mining companies in South Africa now find themselves in a precarious situation as the sliding price of gold and higher production costs have left them struggling to meet the demands of labour unions. As such, we could be in for a prolonged period of uncertainty for the South African mining industry unless companies and unions can show that lessons have been learnt from last year’s episode and move quick to mitigate violence and the loss of life.
Greenback To Be Driven By Fed Member Talk…
Despite general US data thus far this week coming in a little softer, the Dollar retains a bid tone, as US risk markets keep on posting new highs despite much speculation on whether US$ may have rallied a little too far, too quickly. With the market speculating that the numerous Fed speakers in the next 24 hours may follow on from Plossers’ comments of earlier today with regard to the scaling down of asset purchases and reviving the debate on the possible end to QE in the US, then even semi decent CPI and Philly Fed numbers this afternoon should keep that trend intact and a lower CPI shouldn’t necessarily surprise in light of softer commodity prices.
The bullish USD theme opened with a vengeance this morning as commodity currencies bore the brunt of its resurgence as Gold tumbled, but with the majors largely unchanged and rangey ahead of the impending data releases. (in addition to CPI today we await US data including housing, jobless claims and the Philly Fed )
In terms of the EUR, it seems to finally be playing a bit of “catch up” to the downside, kicked off yesterday by the weak German GDP. The close below the 200 DMA and below 1.2950 are technically negative and despite the fact there appears to be some good buying interest around 1.2850 support level which is holding the downside for the moment, a distinct lack of upside “bounce” and eagerness to sell any rallies, seems to suggest we see another leg lower before too long . Although expect some buying interest towards 1.2800 to stop any potential sell off being a free for all.
Against the Yen, the $ consolidates above 102 despite some positive numbers emanating from Japan .US data likely to keep USDJPY “choppy” whilst the pivotal 101.80 holds then technical targets at 103.15 remain intact and viable.
So to summarise, expect US data and Fed speakers to play a large part in the USD short term direction with it likely to remain firm with eager buyers of any dips and it being the catalyst for most recent FX moves, but with a close eye on Gold for direction in the “commodity currencies”.