We hosted a briefing to clients in Johannesburg with an impressive line-up of speakers attempting to unpack the political and economic environment in SA. The domestic section provides a brief overview of some of the main points of discussion. On the data read more

We hosted a briefing to clients in Johannesburg with an impressive line-up of speakers attempting to unpack the political and economic environment in SA. The domestic section provides a brief overview of some of the main points of discussion. On the data front, retail sales for June surprised on the upside, providing additional evidence that the SA economy likely returned to growth in 2019Q2. On the international front, we unpack the latest industrial production figures from China and the US. The latest data supports the view that Chinese growth is likely to slow further in 2019H2.

On the domestic front, data on mining and manufacturing output for June was released, completing the picture for 2019Q2. In all, both mining and manufacturing output expanded on a quarterly basis, suggesting that GDP could recover somewhat from the weak read more

On the domestic front, data on mining and manufacturing output for June was released, completing the picture for 2019Q2. In all, both mining and manufacturing output expanded on a quarterly basis, suggesting that GDP could recover somewhat from the weak figures posted in Q1. In international news, escalating trade tensions between the US and China and persistent uncertainty around Brexit continued to weigh on expectations for global growth. These concerns were reflected in major financial market volatility amid general risk-off sentiment, and continue to support the dovish turn in global central bank policy actions.

Treasury revenue and expenditure data for the first fiscal quarter, released last week, have strengthened the argument that SA’s public finances are in a dire position – at least compared to budget projections in February. This is especially true from the read more

Treasury revenue and expenditure data for the first fiscal quarter, released last week, have strengthened the argument that SA’s public finances are in a dire position – at least compared to budget projections in February. This is especially true from the revenue side. Meanwhile, domestic economic data painted a mixed picture. While the unemployment rate rose to a multi-year high, vehicle exports and the Absa Purchasing Manager’s Index (PMI) for July were noticeably upbeat.

Domestic financial markets were dominated by the reaction of credit rating agencies to Finance Minister Tito Mboweni’s announcement that Eskom will receive an additional R59 billion (bn) bailout. This will be spread over the 2019/20 (R26bn) and 2020/21 read more

Domestic financial markets were dominated by the reaction of credit rating agencies to Finance Minister Tito Mboweni’s announcement that Eskom will receive an additional R59 billion (bn) bailout. This will be spread over the 2019/20 (R26bn) and 2020/21 (R33bn) fiscal years. Combined with the R23bn per annum committed to Eskom in the February budget, the latest bailout means Eskom will receive R105bn in government support through 2020/21. This news overshadowed domestic data releases showing moderate consumer and producer inflation for June. While the additional bailout is positive for Eskom, it places a further drain on the fiscus. Indeed, both Moody’s and Fitch saw the news as negative for SA’s sovereign credit rating outlook. While Moody’s did not pronounce on the actual rating or outlook (see domestic section below), Fitch revised the outlook on its BB+ foreign and local currency rating to negative from stable. This is the first step towards Fitch cutting SA’s rating a further notch into sub-investment territory. Besides the large Eskom bailout, the outlook revision was justified on the grounds of SA’s sustained poor real GDP growth performance and the likely subsequent government revenue underperformance. Fitch also raised concerns about SA’s growth potential, and now expects a consolidated budget deficit of 6.3% of GDP in 2019/20. The impact of the rating agency pronouncements on the rand exchange rate and government bond rates is discussed in the markets section. Internationally, the European Central Bank (ECB) kept monetary policy unchanged last week, but expressed the intention to relax policy going forward. Meanwhile, the manufacturing Purchasing Managers’ Indices (PMIs) in both the Eurozone and the US fell to multi-year lows, continuing the trend in recent months of slowing industrial activity. Key events this week include Eskom’s financial results presentation tomorrow and the US Fed interest rate decision on Wednesday. The Fed is widely expected to cut the policy rate by 25bps. Attention will be focused on the tone of the accompanying statement, especially the extent to which the Fed signals further monetary policy easing down the line.

The big domestic economic news last week was the 25 basis points (bps) cut in the repo rate while the big corporate news of the week was the announcement on Friday that US-based PepsiCo had reached an agreement with SA food company Pioneer Foods to purchase read more

The big domestic economic news last week was the 25 basis points (bps) cut in the repo rate while the big corporate news of the week was the announcement on Friday that US-based PepsiCo had reached an agreement with SA food company Pioneer Foods to purchase all outstanding shares in the local company in a deal worth about R24.4bn. Internationally, consumer spending in the US and UK remained robust in May while industrial production in the US came under pressure.

Last week was relatively quiet on the domestic data front. Mining and manufacturing output were mixed, but both sectors are set to recover in 2019Q2 after a poor first quarter. This should ensure a much improved GDP print in Q2. Internationally, trade read more

Last week was relatively quiet on the domestic data front. Mining and manufacturing output were mixed, but both sectors are set to recover in 2019Q2 after a poor first quarter. This should ensure a much improved GDP print in Q2. Internationally, trade numbers in China are showing the effects of the trade dispute with the US, while economic growth in China slowed to the slowest rate in at least 27 years. Meanwhile, industrial output in the Eurozone picked up slightly in May, the first improvement in four months. In financial markets, the dollar remained under pressure as a July cut in the US policy interest rate seems ever more likely. This week, the domestic economic calendar is dominated by the SA Reserve Bank’s (SARB) Monetary Policy Committee (MPC) interest rate decision on Thursday. The combination of a further deterioration in the real GDP growth outlook since the previous MPC meeting in May, continued subdued consumer inflation prints and the dovish global monetary policy tilt towards renewed stimulus should result in a 25bps interest rate reduction. This would reduce the repo rate to 6.50% and be the first policy rate drop since March 2018.

During last week, the rand continued to strengthen and even dipped below R14/$ mid-week. However, the tide turned after the release of better-than-expected US nonfarm payrolls figures from the US. The jobs data is discussed in the international section, along read more

During last week, the rand continued to strengthen and even dipped below R14/$ mid-week. However, the tide turned after the release of better-than-expected US nonfarm payrolls figures from the US. The jobs data is discussed in the international section, along with manufacturing Purchasing Managers’ Index (PMI) figures from Europe and the US. International PMIs – including the China PMI discussed last week - are broadly trending lower on the back of slowing new orders. This resulted in the global manufacturing PMI slumping to an almost seven-year low in June. The domestic focus is on the latest manufacturing PMI from South Africa, as well as vehicle sales figures in what was otherwise another quiet week on the domestic data front. Both sets of data turned out weak in June.

It was a fairly quiet week on the domestic data front with South African financial markets dominated by the further strengthening of the rand exchange rate. In the domestic section, we unpack the latest producer price trends, labour market developments as read more

It was a fairly quiet week on the domestic data front with South African financial markets dominated by the further strengthening of the rand exchange rate. In the domestic section, we unpack the latest producer price trends, labour market developments as well as May’s trade balance. Internationally, the focus is on a variety of data releases from Europe, US, China and Japan. Inflation data from the Eurozone and US came in well below their respective central bank’s inflation targets. This supports the recent more dovish stance by both central banks. Indeed, increased bets on pending US rate cuts contributed to a weaker dollar. This provided a welcome boost to the rand.

Emerging market assets, including the rand exchange rate, benefitted handsomely last week from more dovish-than-expected monetary policy outlooks from the US and European central banks. If it was not for some disappointment that President Ramaphosa’s State of read more

Emerging market assets, including the rand exchange rate, benefitted handsomely last week from more dovish-than-expected monetary policy outlooks from the US and European central banks. If it was not for some disappointment that President Ramaphosa’s State of the Nation Address (SONA) lacked concrete details on how Eskom will be brought back to a sustainable financial position, domestic assets may have gained even more. On the domestic data front, the case for an interest rate cut next month was bolstered by the latest consumer inflation print for May which, while somewhat up from April, remained well contained. This, as well as some initial thoughts on the SONA, is discussed in more detail here. As mentioned, internationally the focus was on advanced country monetary policy meetings. The central banks of the US, Japan and the UK all kept their respective policy rates unchanged. However, the sentiment is becoming increasingly dovish and in the case of the US, Japan and Europe, there is a growing likelihood of an interest rate cut before the end of the year.

Domestic economic data for April surprised on the upside this week, quelling fears of a technical recession (two consecutive quarterly contractions in GDP). However, business sentiment data suggests that the recovery may not be sustained throughout 2019Q2. read more

Domestic economic data for April surprised on the upside this week, quelling fears of a technical recession (two consecutive quarterly contractions in GDP). However, business sentiment data suggests that the recovery may not be sustained throughout 2019Q2. Meanwhile, on the international front, consumer inflation data in the US continued to make a case for an interest rate cut later this year, while data from China was mixed.