Markets Overnight:
The US markets reacted sharply yesterday as the growing concern over Italy was represented in its government 10 year bond yield. Why is this bond yield so important? Well when a government needs extra funding it sells bonds on the market, thus borrowing money from the market at a certain ‘yield’. If the market perceives the government to be risky, it will expect a higher interest rate (yield) in return for the risk taken for lending the money. This is exactly what has happened in the wine clad country of Italy, as their bond yields have spiked over 7.00%, the same yield that Greece, Portugal and Ireland were unable to service their debt and applied for bailouts.
So what does this mean for us as market participants? Well if the third biggest country in the EU fails, it would have a substantial effect, more so than the tiny country of Greece! And let’s not forget just what that small country of Greece has already done to destabilize the world economy – scary thoughts indeed. Though Italy is a country considered too big to fail it must be noted that it may also be too big to save, so unless the issue is tackled correctly, this may turn REALLY ugly.
This risk reverberated through the US sending their fear index through the roof, up 31% and the stock markets plunging over 3.00% down. There have been talks of making the Euro-zone smaller i.e. excluding members from the EU – talks the German coalition is drafting plans to allow members to withdraw from the EU.
South Africa:
Moody’s downgraded South Africa’s sovereign debt outlook from stable to negative on political risk within the country. Chinese import of South African coal rose three-fold in the month of October to 2.59million metric tons. ANCYL league president Julius Malema did not pitch for an address at the Mining for Change forum held yesterday.
Company News:
Anglo American [AGL] sells its 24.5% stake in Chilean copper asset to Mitsubishi. BHP Biliton [BIL] is said to invest $100million on its smelter project in South Africa, positive news for our country. MTN [MTN] plans to invest R8billion in third generation wireless stations for data transmission in SA.
GoldFields [GFI] reported 3% increase in quarter on quarter output to 900Koz. Spar [SPP] reported their full-year 2011 numbers yesterday which surprised on the upside with a 11.6% increase in sales and the highest forward dividend yield at 4.5%.
Today:
First port of call is the MPC meeting today to decide whether South Africa will have its repo rate remain at 5.5% (consensus) or get the cut a small majority say is needed. Bigger US companies reporting today are NVidia and Walt Disney.
SA reports its Mining and Gold Production, which will show whether the miners are taking advantage of the higher gold price.
