GLOBAL MARKETS
NO BIG CHANGE IN ECB MONETARY POLICY

IN LINE WITH EXPECTATIONS, THE ECB DID NOT ANNOUNCE ANY CHANGES AT THEIR MONTHLY MONETARY POLICY REVIEW MEETING.

ECB President Draghi did however confirm that the bank had started to implement the new stimulus measures taken on in March, including the EUR80bn monthly asset purchasing programme as well as the corporate sector debt purchasing programme, where debt will be purchased in both the primary and secondary markets.

INFLATION FOR THE 2016 YEAR IS FORECAST TO BE ALMOST FLAT AT 0.1%, FAR BELOW THE 2% TARGET.
While no additional stimulus is expected in the near term, if negative shocks reduce the bank’s inflation forecasts even further, they may be forced to look at additional measures.

OIL HAS SEEN A FAIRLY VOLATILE WEEK.
Prices fell sharply on Monday following talks be-tween some of the major oil producers in Doha on 17 April, which resulted in a failed agreement to control output. After reaching a low of around USD40/bbl, prices have since rebounded in reaction to US production numbers released by the Energy Information Administration which indicated that crude inventories were lower than expected. US oil production increased 2.1m to 8.95m barrels per day. However, this was lower than the 2.4m expected, indicating that demand was greater than consensus expectations. Oil increased 4.7% w/w and is now trading around the USD44/bbl level.

IN BRAZIL, FOLLOWING A THREE DAY SESSION, THE HOUSE OF REPRESENTATIVES VOTED IN FAVOUR OF AN IMPEACHMENT OF PRESIDENT ROUSSEFF. This vote has arguably been the most significant yet but a majority vote from the Senate is still required for the president to officially step down. Despite the positive outcome, both the Real and the Ibovespa Index hardly reacted, indicating that the market sees little scope of gains going forward given the country’s economic and financial situation, regardless of who is in power.

Markets were fairly mixed over the week, with DM’s outperforming EM’s, the MSCI World and MSCI EM Index up 0.94% and down -0.18% respectively. On a total return basis, the Nikkei 225 Index outperformed most indices, up 4.3% w/w.

DOMESTIC MARKETS
RATE HIKES MAY BE PAUSED

IN LINE WITH OTHER EM AND COMMODITY BASED CURRENCIES, THE RAND CONTINUES TO STRENGTH-EN AND APPRECIATED 1.1% AGAINST THE USD OVER THE WEEK. CLOSING AT ZAR/USD 14.45, THE RAND IS NOW UP 2.2% MONTH-TO-DATE AND IS THE SECOND BEST PERFORMER AMONGST ITS EM PEERS.

March inflationary figures were released, with both headline and core CPI COMING IN LOWER THAN EXPECTED AND DOWN FROM THE PREVIOUS MONTH.

Headline CPI fell to 6.3% y/y from 7% in February and core CPI fell to 5.4% y/y, down from 5.7% in February and much lower than expectations of 5.8%.

The decline in headline CPI can largely be attributed to the lower oil price, however food inflation continues to exert upwards pressure on prices, rising 9.5% y/y. Together with the recent strengthening of the Rand, the better than expected inflationary prints may cause the SARB to pause on their interest rate hiking cycle at the next MPC meeting in May.

IN AN ARTICLE IN THE SUNDAY TIMES, FINANCE MINISTER GORDHAN DISCUSSED THE NEED TO SPUR GROWTH IN THE COUNTRY.

The article highlighted energy plans which aim to connect renewable energy to the grid as well as progress made on labour relations. Gordhan also said that the government is working with municipalities to cut red tape inhibiting businesses but very little detail was given on how these measures are to be achieved.

Positively, the article concluded that “a lot of progress has been made, with announcements due in a few weeks.”

With most local markets closing the week in the negative, Resources were once again the star performer, the Resource 20 Index up 5.1% w/w. The JSE All Share Index was down -0.1% w/w.

Week in Review (Global and Domestic Markets) 22 April 2016-page-003

Week in Review (Global and Domestic Markets) 22 April 2016-page-004