Another week focused on politics and policy interest rates


Tracey-Lee Solomon

As has been common this year, politics and interest rates were in the spotlight this week. Locally, a government of national unity (GNU) is taking shape. The international focus was on the aftermath of the European Parliamentary election, which led French President Emmanuel Macron to call for a snap election. Across the Atlantic Ocean, market participants were zoned in on US consumer inflation data and the Federal Reserve (Fed) interest rate decision.

Today, the National Assembly will convene for the first time to elect a Speaker and a President. Despite the best efforts, the uMkhonto weSizwe (MK) party’s urgent application to block this session was dismissed by the Constitutional Court. The MK party claims the election results are invalid and threatened to withhold its 58 MPs from attending. However, their absence will not prevent the election of a President. Once elected and sworn in, the President can appoint the Cabinet and deputy ministers and structure the government - the ANC said late last night that it is too early to provide details on the GNU. It seems like the ANC, DA and IFP will be part of the GNU, while the EFF and MK have rejected it.  Agreements must also be reached in the hung provinces. In KwaZulu-Natal, the IFP president announced efforts to form a government in collaboration with the DA, ANC, and National Freedom Party (NFP), as these four parties hold a combined 41 out of 80 legislative seats. Uncertainty remains in Gauteng, the country’s economic hub. The 2024 general election did not produce a clear winner, with the ANC securing 36.4% of the vote, translating to 28 seats in the 80-seat provincial legislature. The DA won 22 seats, the EFF received 11, and the MK party received 8. The IFP, which has one seat, has expressed willingness to work with the ANC and DA in Gauteng.

On the global front, European voters participated in Parliamentary elections over the weekend to choose representatives for the next five years. The elections were closely watched due to the rise of Euroscepticism. In major EU economies, dissatisfaction with the predominantly left-leaning ruling parties, fueled by disdain for migrants, high inflation, and a cost-of-living crisis, boosted hard-right parties. However, centrist and leftist parties still maintained a majority overall.

The most significant reaction came from France; President Macron’s pro-business party faced a substantial defeat to Marine Le Pen’s far-right National Rally. This prompted Macron to call a snap legislative election, now scheduled for 30 June and 7 July. Many French voters used the EU election to express dissatisfaction with Macron’s handling of the economy, agricultural policies, and security issues. The snap election poses a significant risk for Macron’s party. The National Rally seeks to limit migrant movement and roll back EU climate regulations, aiming to weaken the grip of the EU from within rather than leave it outright.

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In Germany, the EU’s most affluent and influential nation with the largest representation in the the EU Parlaiment, Chancellor Olaf Scholz’s centre-left coalition suffered a significant defeat by the conservative opposition, which capitalised on his government’s struggles. The German Greens, crucial to the EU’s global climate policies, also saw a decline in support. The far-right Alternative for Germany party made notable gains despite scandals involving its top EU legislature candidates. In  Italy, Premier Giorgia Meloni’s Brothers of Italy party, with neo-fascist roots, is expected to more than double its seats in the European parliament since the last election, significantly boosting her influence over EU policy.

Meanwhile, tension between China and the rest of the world continues to simmer. The European Commission announced it will impose up to 38.1% in additional duties (on top of the current 10% duty) on imported Chinese electric vehicles starting in July, risking retaliation from Beijing. This follows on Washington's recent plan to quadruple tariffs on Chinese EVs to 100%. Chinese EVs now hold 8% of the EU market, up from below 1% in 2019, and may reach 15% by 2025, with prices 20% lower than EU-made models. The move has caused shares of major European carmakers, who depend on the Chinese market, to fall due to fears of possible Chinese retaliation.

While politics took up many headlines, monetary policy moved equity markets. Stock markets rallied after the release of a cooler-than-expected US CPI report. Indeed, despite the US Fed’s more hawkish Summary of Economic Projections (SEP) on Wednesday, detailed in the international section below, weighing on the bourses at the end of the session, the S&P 500 finished the Wednesday 0.9% higher. Gains were not limited to the US; the UK’s FTSE 100, Germany’s DAX and our own JSE Alsi closed higher on Wednesday. On the domestic front, this unfortunately did not make up for the losses at the start of the week, and the local bourse ended yesterday lower than the same time the previous week.

In currency markets, the US dollar strengthened against the euro amidst political instability in the Eurozone (EZ). The rand also gained against the euro. Moreover, the local currency appreciated against both the US dollar and the British pound. Market sentiment appears optimistic ahead of parliament's first session, reflecting confidence in progress towards a GNU.

After initially sliding on news that OPEC+ would gradually ease its production cuts starting 2024Q4, oil prices rebounded this past week. The rebound was partly technical, driven by an initial oversell, and partly due to indications from OPEC officials that they might slow down the pace of production increases if necessary. In other oil market developments, the International Energy Agency's annual report predicted that global oil demand would peak in 2029, leading to market surpluses thereafter. Although this forecast had minimal impact on current prices, it stirred concerns among OPEC members, who anticipate demand growth until 2050.


Stats SA will release a range of domestic trade data and the latest inflation figures next. In Q1, retail and motor trade contracted, while wholesale trade saw positive growth, resulting in a modest 0.1% q-o-q expansion in the trade sector. We hope for a better outcome at the start of Q2. Additionally, Stats SA will publish the May CPI. In April, inflation eased to 5.2% y-o-y due to a lower food price increase. The slowdown was not limited to food. Core CPI, which excludes food and fuel, also fell to 4.6% in April. While we still see inflation slow through the rest of the year, the path will be choppy. Indeed, we expect that headline inflation accelerated to 5.5% in May on the back of higher food and fuel prices.

Internationally, the week starts with data from China. On Monday, the National Bureau of Statistics of China will release May’s industrial production and retail sales figures. Following this, we will see EZ inflation for May, which has already shown a preliminary increase to 2.6% y-o-y from 2.4% in April. Also on the agenda are the June ZEW economic sentiment index for Germany and the May US retail sales.

The Bank of England (BoE) is set to meet next week. A Reuters poll suggests that most analysts expect the BoE to keep interest rates unchanged, with a cut anticipated in August. While the BoE might be inclined to reduce rates as the economy remains sluggish (see international section), wage data indicates waiting may be prudent. Despite rising unemployment and job losses suggesting a cooling labour market, earnings increased by 5.9% in the three months to April, signalling ongoing wage pressure. This poses risks to inflation, particularly in the persistently high-inflation services sector. The May inflation data for the UK will also be released next week. In April, inflation surprised on the upside, with core inflation at 3.9% y-o-y. This will be the last BoE meeting before the UK elections on 4 July.

Lastly, we will receive the preliminary June PMI data for the US, UK, and the EZ.


Nkosiphindile Shange


According to Stats SA, annual manufacturing production rose by 5.3% y-o-y in April, beating market expectations of a -0.6% contraction. This follows a downwardly revised 6.5% contraction in March. Growth was broad-based, with nine of the 10 subsectors reporting growth, except for the furniture and other manufacturing subsector, which declined by 2.1%. On a monthly basis, all ten subsectors expanded, and total production increased by 5.2% in April. The absence of load-shedding likely helped with the monthly bump. Indeed, this is the fastest monthly expansion since August 2021 (when output recovered by 6.4% from the riot-induced slump in July).

Meanwhile, the Absa Manufacturing Survey showed that manufacturing business confidence gained 7 points to 28 points in 2024Q2. This is still below the long-term average of 36 points, but it is the highest confidence level in two years, at the same level of 28 points in 2022Q2. Production benefitted from an extended period of no load-shedding, with capacity utilisation going up to levels last seen in 2021Q4.


According to Stats SA, mining production grew by 0.7% y-o-y in April, on par with the consensus forecast, following a 5.8% contraction in March. The biggest contributors were PGMs (16.9%, 4.3%pts) and chromium ore (20.8%, 0.9%pts). On a seasonally adjusted basis, production increased by 0.8% m-o-m in April 2024 from a 4.4% drop in March 2024. Mineral sales at current prices were up 11.8% y-o-y in April with growth from gold (226.5%, 12.7%pts), chromium ore (17.3%, 1.4%pts), and iron ore (9.3%, 1.3%pts). Seasonally adjusted sales grew by 14% in April 2024 compared to March 2024, following a m-o-m decrease of 14.2% in March 2024


Nomvelo Moima


On Wednesday, the US Fed delivered a somewhat hawkish signal on the path of interest rates for the rest of the year. While the Fed Funds Rate was held steady at 5.25%-5.5% as expected, updates to the Summary of Economic Projections (SEP) show that the median projection for the Fed Funds Rate was raised to 5.1% from 4.6% in the March SEP. This implies that FOMC participants only anticipate one 25 bps cut before year-end, dialling back from the three such cuts projected in March. Additionally, the Fed lifted its year-end forecasts for headline and core PCE inflation. Projections for real GDP growth and the unemployment rate were unchanged. It should also be noted that the SEP reflects the softer CPI data released earlier in the day. However, in the post-meeting conference, Fed Chair Jerome Powell shared that “most” participants opt to keep their projections unchanged on days when data releases coincide with FOMC meetings. The pause in disinflation progress seen in Q1, along with “solid” economic activity and a sturdy labour market contributed to the delay in rate cuts. The Fed signalled that it was willing to keep rates unchanged until there was material weakness in the US economy or the labour market.


US headline consumer inflation (CPI), released just a few hours before the Fed’s interest rate decision, slowed to 3.3% y-o-y in May from 3.4% y-o-y in April. This was surprisingly cooler than expectations of another 3.4% y-o-y rise. On a monthly basis, headline CPI remained unchanged for the first time since July 2022, restrained by falling energy prices and modest increases in food prices. Core inflation, which excludes volatile food and energy prices, fell to 3.4% y-o-y from 3.6% y-o-y in the prior month. This marks the lowest core reading in over three years, which comes as sticky services inflation finally begins to show signs of easing. Beyond consumer prices, PPI inflation also surprised on the downside, moderating to 2.2% y-o-y in May from 2.3% in the prior month. On a monthly basis, headline PPI declined by 0.2%, following a 0.5% increase in April.

Moving to China, this week’s CPI and PPI inflation reports told different stories. May CPI numbers revealed a 0.3% y-o-y rise in prices, matching the previous month’s increase but missing market expectations of a 0.4% y-o-y gain. This signals a gradual recovery of domestic consumption in China. However, in addition to a decline in transport prices, downward inflation pressures remain persistent from falling food prices, albeit at a softer pace. Meanwhile, factory gate deflationary pressures were a little less in May. PPI fell by 1.4% y-o-y, up from a 2.5% contraction in April.


In line with consensus, the UK economy stagnated in April following three straight months of expansion. Growth in the services sector was offset by sharper-than-expected declines in manufacturing and construction output, both dipping by 1.4% m-o-m. Wet weather conditions have been blamed for weaker-than-expected retail and construction activity. However, despite muted retail sales in April, the services sector expanded by 0.2%, recording a fourth consecutive month of growth. The disappointing GDP growth data comes as a blow to UK Prime Minister Rishi Sunak ahead of the coming general elections as he seeks evidence to assure voters that the UK economy is finally turning around.


Editor:         Lisette IJssel de Schepper
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