[TOP STORY] Looking at Grindrod, Transnet, US inflation, jobs and interest rates

SIMON BROWN: I’m chatting now with Mia Kruger, director at Kruger International. Mia, let’s start with the home news, I suppose. Grindrod – a really strong update from them. Of course, [it’s] a very cyclical business. When commodities are booming, Grindrod kind of goes with it as well. But [those were] really good numbers coming through for what I think was a nine-month trading update.

MIA KRUGER: Good morning, Simon. Yes. It has been a really strong number coming out. Also, that company, [for those] who follow the share price, has done particularly well. There are various reasons in my mind for this. First, it was trading dirt cheap. At this stage, even after this update, it doesn’t look particularly expensive compared to its history. So a very interesting company because it is actually starting to fill a lot of holes that we are seeing appearing due to negligence and the lack of service delivery due to infrastructure going backward in South Africa.

We know what’s happening at Transnet. No one needs a lesson in what’s happening at Transnet if you just read the news. …Grindrod has really built up a strong business in the ports and terminal space, focusing on helping South African companies export their minerals, whether it’s dry bulk, whether it’s other commodities. They are really assisting these companies in getting the minerals out of South Africa, because that’s one of the big issues here. I spoke about that yesterday to someone else, and one of the main concerns in South Africa, even if we see stronger a commodity price, is we can’t get [the commodities] out of South Africa because we don’t have the infrastructure any more. So that’s a real, real problem and we see Grindrod benefiting from that.

Also, the company has streamlined the business, they’ve sold off their bank. It’s been something that they’ve wanted to do for quite some time. It has been approved by the Competition Commission to African Bank, which will make that a really interesting new player in the business banking space. I think it is small, but still sort of an interesting new addition. A good fit there.

And then of course we also know about the other corporate action that we saw in in the media, which was Remgro unbundling their Grindrod shares to shareholders directly.

So overall, lots happening around the Grindrod name, but a strong trading update.

As you mentioned, it is very cyclical but I still think that this business has potential due to the fact that it’s plugging a lot of holes in South Africa and Africa which need plugging.

Listen: Remgro reports strong results as it unbundles Grindrod
Listen/read: African Bank CEO on Grindrod Bank, Ubank acquisitions

SIMON BROWN: Yes, essentially stealing market share from Transnet, which is a weird concept. But, as you point out, Transnet is quite broken, so there’s lots to steal there.

Going offshore, we had the US inflation [news] yesterday. It did fall to 8.2% from 8.3%. Initially the market hated it, then the market loved it. The market truthfully is sometimes just a crazy, manic space. But in essence inflation’s coming down; it is slow and the Federal Reserve is going to continue raising rates. That to me is probably the key part of that data point.

MIA KRUGER: That’s basically the long and the short of it. Looking a little bit deeper into the inflation numbers … is always the interesting thing for me because inflation, as with many economic numbers, is something that you can look at from various angles, depending on what you want to see, what you want to consider.

For me a very interesting angle that I saw yesterday that I haven’t really focused a lot of attention on before was the three-month seasonally adjusted annual rate of inflation. That has really come down. So if we consider what’s happening on that side, it has potential.

The big issue here [that] I think the Fed keeps their focus on, and that the market really has latched on to as well, is the fact that the core inflation – which really includes services inflation, includes that housing or ‘shelter inflation’ that they refer to – that part of the inflation number has kept on creeping up. So we’ve seen a year-on-year increase of 6.6% in the core inflation number, even though the big, big other contributors like energy have come down from where [they were] in July, [energy having] a year-on-year increase of around 40% to now less than 20%. So those numbers are creeping down due to base effect and due to prices moderating.

But the bulk of the inflation number, which is really the core inflation, seems to be sticky. We’ll have to see interest rates starting to affect the housing market firstly, and also the labour market.

We did hear yesterday that there was a slightly higher jobless claims number coming out of the US – in other words, people claiming money for not going to work. That is sort of a negative/positive in this sense, showing that there might be some softening in the labour market. But we’ve still seen the joblessness rate in the US go lower in the past month, which still shows a very, very strong job market. So we’ll have to watch this number.

But overall I’m with you. I think that the Fed is still far from over hiking [interest rates]. They’ll definitely have to get this under control.

The big issue is if they don’t get inflation under control the economy will go into recession. If they get inflation under control and raise rates, the economy will most definitely go into a recession. It’s just the depth of the recession that I think that everyone is sort of thinking about.

I still believe that it could be sort of a softer landing than the hard landing that many of the commentators talk about.

SIMON BROWN: Yes. It is a complex juggling act, which is why US Fed chair Jerome Powell gets the big money, I suppose. Mia Kruger at Kruger International, I always appreciate your early morning insights.

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