For market watchers and investors, the biggest surprise of 2019 was arguably the generally good performance of global equities. Overall, global equity prices were supported by the accommodative stance of monetary authorities. Also, interest rates were kept low – and even cut – in some geographical jurisdictions.
I thought this Moneyweb article was an excellent summary of Finance Minister Tito Mboweni’s medium term budget policy statement, but if you can’t manage to hold your attention for the entire article, the post below from The Atlantic might explain why…
On the local front, the SA Reserve bank (SARB) cut the repo rate by 25bps to 6.5% in July. It was left unchanged in September. The domestic economy remains weak.
Average inflation was 4.3%, which was below the mid-point of the SARB target range.
The Rand traded in a volatile range – from a low of USD/ZAR 13.97 to a weakest level of USD/ZAR 15.50 in mid-August.
While Archie tries to predict when the next-door cat will stealthily appear in his garden, investors try to predict the Rand/USD exchange rate. It is difficult to say who is having more success!
On 3 September, the rand broke through the R15/USD for the first time in almost a month, lifted by positive local news. SA’s GDP rebounded by a surprise 3.1% in the second quarter, avoiding the shadow of recession.
However, predicting the performance of the Rand over the short term is notoriously difficult… and prone to significant forecast error. One factor that has remained relevant in the last 10-15 years has been the role of commodity prices. In general, if commodity prices go up, the Rand strengthens – and visa versa. This suggests that in the absence of other guiding factors, watching the performance of industrial commodity prices is key (though this does not include energy prices and precious metals such as gold). In short, industrial commodity prices moving up provides a good indication of impending Rand strength (and visa versa).
Good luck Archie!
Source: Analytics Consulting
The appearance of a yield curve inversion has market watchers spooked…
Over the past few months, there has been a great deal of anxious chatter about the possibility of a recession in the US. Arguably, much of this fear stems from what is known as the ‘yield curve inversion’. Historically, yield curve inversions foreshadow a recession.
Archie has a new designer collar!
As many analysts had expected, economic data has revealed that SA’s unemployment rate climbed to an all-time high of 29% in the second quarter of 2019.
On a more positive note, however, retail sales growth beat expectations for a second straight month in May. Retail sales are likely to get a further boost from the SA Reserve Bank, which cut the repo rate by 0.25% in July.
No wonder then, that Archie is splashing out on the high street!
The broader, global view…
- The ongoing and often vicious trade dispute between the US and China has led to a material slowdown in global trade during the first half of 2019;
- Major Central banks, in particular the US Federal Reserve (FED) and the European Central Bank (ECB) have indicated that they will probably provide additional stimulus during the second half of the year to help offset some of the weaknesses caused by the slowdown in global trade;
- South Africa has not been immune to the negative effects of the trade disputes and export performance in 2019 has been adversely affected by the slowdown
Climate Change Controversy Dominates G20
While Archie shivers miserably with cold in Johannesburg, record high temperatures in Europe are again raising concerns about climate change.
Indeed, although trade has been the main focus of this year’s G20, the thorniest issue has been climate change – and what to do about it.
Following prolonged debates, the G20 eventually met French President Emmanuel Macron’s demand for a strong reference to the Paris Agreement on reducing greenhouse gas emissions –and also averted the threat of President Trump convincing Turkey and Brazil to join him in withdrawing from the Paris Agreement.
However, a statement of US objections was included….“The United States reiterates its decision to withdraw from the Paris Agreement because it disadvantages American workers and taxpayers”.
With all this talk about trade wars and tariffs, Archie is concerned that he will not be getting any more toys…
There is still no clear sign of a de-escalation of US-China trade tension. To the dismay of many leaders, President Trump is still defending his tariff strategy. On the bright side, Jay Powell, Chairman of the US Federal Reserve, has signaled that the Central Bank is ready to cut interest rates if trade wars do hit the world economy. Trump is claiming that the Chinese will pay for the tariffs – which remains a highly disputed and controversial assertion. In fact, companies are expected to pass the extra costs onto the consumer.
No wonder then, that Archie is suffering from mild bouts of Trump-related anxiety.