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Lisette IJssel de Schepper
This week was the calm before the storm of key domestic data releases next week, with the most important release so far being producer price inflation (PPI) – more data is due later today. Like consumer inflation, PPI undershot expectations in July (see domestic section for more). The international calendar was also fairly light, with an upward revision to Q2 US GDP underscoring that despite weaker labour data of late, the economy remains strong.
Beyond data, there were some interesting developments concerning SA’s embattled State-Owned-Enterprises (SOEs). President Cyril Ramaphosa assigned shareholder responsibility for each of the SOEs that previously fell under the Department of Public Enterprises (DPE) to the respective line-function ministries. For example, this means that Eskom is assigned to Minister of Electricity and Energy, while responsibility for Transnet and the national airlines lies with the Transport Ministry. Ramaphosa also approved a law setting up the ‘National Water Resources Infrastructure Agency’ to manage bulk water infrastructure and manage water assets. Finally, on electricity, the presidency said it wants to set up a body to oversee the raising of the R319bn required to repair and upgrade municipal power grids. Meanwhile, Transnet announced it would rework plans to privatise some of the container terminals with current criteria deemed too onerous. The delay is a setback to much-needed reform, but the willingness to accommodate private sector concerns and make the partnership work is welcome.
Eskom CEO Dan Maroke announced the utility hopes to avoid load-shedding through summer as long as unplanned outages remain below 13GW. We have now seen a streak of more than 150 days of no load-shedding with unplanned losses averaging about 12.4GW since April. This is much better than the 15.5GW expected and outperforms 2023, mainly because the performance of the coal fleet improved. This has also resulted in less reliance on open-cycle gas turbines with a subsequent decline in diesel costs. However, possible delays to the pending return of large generation units (at Kusile, Medupi and Koeberg) could throw a spanner in the works. This is why Eskom does not want to call the end of load-shedding (yet), but the outlook seems promising.
In commodity markets, reports that Libyan oil production (normally, it exports about 1 million barrels per day) was shut down pushed the oil price sharply higher on Monday. Demand concerns then pushed the price lower later in the week, before it settled higher once more yesterday. The escalation in the exchange of fire between Israel and Hizbollah meant that geopolitical concerns remained elevated. The Russia-Ukraine war also intensified with Russia launching several waves of missile and drone attacks aimed at Ukrainian cities and critical infrastructure.
Beyond an increase in the gold price, there was more good news on the commodity front for SA with a surge in the iron ore price. The price edged back above $100/MT. This is despite growing concern about the strength of the Chinese economy and worries that it might not achieve its 5% growth target – this kind of news would normally push down the price of the industrial commodity.
The big news on global equity markets was the Nvidia earnings update with some analysts saying that these updates are now as important for US market movements as major economic data releases (such as the nonfarm payrolls). The update failed to meet expections (even as revenue doubled) and resulted in a 6% decline in the chipmaker’s share price. Beyond that, markets mulled over Fed chair Jerome Powell’s speech at Jackson Hole last Friday in which he all but confirmed a September rate cut.
Following a quiet week this week (most domestic releases are due later today), the calendar is very busy next week. On Monday, the Absa PMI for August will be released. After remaining subdued through May and June, the PMI improved notably in July – hopefully, this momentum was sustained in August. On Tuesday, Stats SA publishes the GDP data for Q2. After an unexpected contraction in Q1, activity is expected to have rebounded in Q2. Still, despite a sustained absence of load-shedding, we expect an expansion of just 0.4% q-o-q. This is largely based on the available high-frequency data and slightly below what we expected at the beginning of the quarter. Logistical challenges remained a drag, while the BER’s business surveys (and PMI for May and June) suggest that much of the demand, and as such activity, was held back amid uncertainty about the election outcome and composition of the new government. In that regard, the RMB/BER Business Confidence Index (BCI) for Q3 is highly anticipated to get some sense of how sentiment and business conditions have changed since. The BCI is released on Wednesday. On Thursday, we move back to Q2, as the SA Reserve Bank (SARB) publishes the current account figure for the quarter.
On the global front, we get the final PMI figures, for which we saw flash figures last week. However, the ‘fresh’ data for China and US ISM prints will be more insightful. The US nonfarm payroll labour data for August will take centre stage on Friday.
Official data from Stats SA showed that factory gate prices, measured by the PPI, increased at a slower pace of 4.2% y-o-y in July from 4.6% in June. This was lower than expected. Furthermore, the PPI decreased by 0.2% m-o-m following a decline of 0.3% in June. This is positive news for the inflation outlook.
The US GDP growth estimate for Q2 was upwardly revised, signalling that the US economy remains strong. Real GDP grew at an annualised rate of 3% q-o-q in Q2 (up from an initial 2.8% estimate), following growth of 1.4% q-o-q in Q1. The upward revision was mainly due to stronger consumer spending (up 2.9% q-o-q in Q2 vs an initial 2.3% estimate). Earlier this month, weaker-than-anticipated US employment data heightened concerns about the US falling into a recession. The latest GDP estimate shows that despite cooling labour market conditions in the first half of the year, the US economy and consumers continue to defy the odds.
Across the Atlantic, the German Gfk Consumer Climate Indicator declined to a below consensus -22 points in September, following a marginal recovery to -18.6 points in the prior month. This marks the lowest reading since May 2024 (-27 points). The income expectations indicator deteriorated to its lowest level in nearly two years (3.5 points vs 19.7 in August) and economic expectations fell sharply by 7.8 to 2 points. A weakening economy, concerns about job security and a worsening outlook on households’ financial position in the next 12 months all weighed on consumer sentiment.
On a positive note, a preliminary estimate showed that Germany’s headline inflation rate cooled to 1.9% y-o-y, its lowest level in over three years, undershooting expectations of a 2.1% y-o-y rise. This disinflation trend is expected to play out in the Eurozone’s other large economies (France and Italy) in Friday’s regional inflation release.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
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Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 30 Aug 2024
