GLOBAL MARKETS
ON-GOING POLITICAL UNCERTAINTY AROUND BREXIT

Key news this week came from the ECB and FOMC. The ECB released their June meeting minutes, revealing that members discussed whether to stop their asset-buying programme. Though the central bank ultimately kept stimulus unchanged, the minutes increased concern that the ECB might end their very loose monetary policy fairly soon. After the minutes were released, DM bond yields increased and global equities came under pressure.

In the US, the most recent FOMC minutes showed that the main discussion was around the balance sheet normalisation process, with a bit of a divide amongst committee members on exactly when the process should start – though there was general agreement that it should begin within a couple of months. The US Fed also noted amongst their key points a lack of wage growth and inflation, and an increased tolerance for risk among investors.

US: PMI’S SURPRISE HIGHER, EMPLOYMENT DATA DISAPPOINTS

In the US, the ISM manufacturing PMI for June climbed to 57.8 pts, exceeding expectations of 55.3 pts and up from 54.9 pts in May. This is the highest level in almost three years, due to a rise in new orders, production, and employment. The ISM non-manufacturing print for June came in at 57.4 pts vs. 56.5 expected. The final services PMI was revised up 1.2 pts from the initial flash reading to 54.2, 0.6 pts higher than May’s reading. Employment data for June disappointed at 158k vs. 188k expected, and was down from a revised 230k in May.

EUROPE: PMI AND SERVICES READINGS INCREASE

The final estimate of the Eurozone PMI increased to 57.4 pts in June, higher than the 57.3 pts expected and up from 57.0 pts in May. This is its highest since about April 2011.

The final services reading for the Euro area was revised up 0.7 pts to 55.4, mainly due to revisions for France (+1.6 pts to 56.9) and Germany (+0.3 pts to 54.0). As a result, the composite Euro area reading was reported at 56.3 for June, but still 0.5 pts lower than in May.

UK: CONSTRUCTION PMI SLOWS

The UK’s construction PMI for June slowed to 54.8 pts vs 55.0 pts expected, down from 56.0 pts in May. This signals renewed risk aversion and worries about the economic outlook and political uncertainty surrounding Brexit.

JAPAN: BUSINESS CONDITIONS IMPROVING FOR MANUFACTURERS

The Bank of Japan released their Tankan survey, indicating that business conditions for manufacturers improved from 12 pts in Q1:17 to 17 pts in Q2:17, above estimates of 15 pts. The Nikkei-Markit Japanese composite PMI for June fell to 52.9 pts from May’s multi-year high of 53.4 pts. The services PMI in June rose to 53.3 pts from 53.0 pts in May, reflecting the fastest growth in new jobs in over four years.

CHINA: MANUFACTURING PMI EXCEEDS EXPECTATIONS

The Caixin-Markit Chinese manufacturing PMI for June came in at 50.4 pts, exceeding expectations of 49.8 pts and up from 49.6 pts in May. Growth in output and new orders increased slightly, but employment shrank. The Caixin-Markit Chinese services PMI fell to 51.6 pts in June from 52.8 pts in May, while the composite PMI slipped to 51.1 pts in June from 51.5 pts in May. This independent survey concentrates on smaller, private-ly owned firms while the official National Bureau of Statis-tics PMI looks at larger, state-owned firms.

DOMESTIC MARKETS
RESERVE BANK COMMENTS DRIVE CURRENCY

This week came the end of the ANC policy conference. One of the main topics of discussion was economic transformation, during which delegates suggested further discussion on the “anomaly” of the SARB being privately-owned. This saw the rand lose 2.2% as investors worried about the long-term implications if the SARB were to become state-owned. However, it should be noted that central banks everywhere else in the world are state-owned, and ANC delegates did agree that SARB independence should be “guaranteed” as per the Constitution. Nonetheless, the rand closed the week 2.37% lower at R13.35 to the US dollar.

JSE HIGHER AS RESOURCES BOOST INDEX

The JSE All Share rose 0.57% for the week, with a 3.61% gain in resource shares leading the local bourse upwards. The MSCI EM Index closed 0.82% lower, and the MSCI Global Index lost 0.17% for the week.

BARCLAY’S PMI DECREASES

The Barclays PMI for South Africa fell to 46.7 pts in June, from 51.5 pts in May. Business activity declined to 45.4 pts from 52.3 pts, new sales orders decreased to 43.7 pts from 54.1 pts, employment dropped to 47.1 pts from 47.4 pts, and inventories retreated to 48.9 pts from 49.7 pts. Demand in the second half of the year is expected to stay low, so companies are lowering their production, and employment is likely to drop as a result.

STANDARD BANK PMI ENTERS CONTRACTION

The Standard Bank South Africa PMI reached a high in December 2016 at 51.6 pts, but has been trending lower ever since, dropping to 49 pts in June from a previous 50.2 pts in May. It has now entered a contraction for the first time since August 2016, bringing to an end a nine-month long expansion.

NAAMSA VEHICLE SALES INCREASE

Naamsa reported an increase in aggregate sales to 45,369 vehicles in June 2017, from 44,951 vehicles in June the previous year. On a year-on-year basis, vehicle sales increased 0.9% in June, from a previous decrease of -2.6%. The rise can mainly be attributed to climbing vehicle exports which grew to 1.4% YoY in June from a previous decline of -12% YoY.

ELECTRICITY DEMAND SLOWS

Electricity production growth came in at 4.6% YoY in May, while consumption grew by 3.4% YoY in May, from a previous 0.8% YoY and 0.1% YoY in April respectively. The increasing gap between production and consumption shows a lower demand for electricity, reflective of lower growth. Though electricity consumption increases around mid-winter (July), Eskom’s 2.2% tariff increase for electricity also becomes effective in July. Thus the risk remains that the production/consumption spread may still increase if consumers switch to cheaper forms of energy.

SACCI BUSINESS CONFIDENCE INDEX REBOUNDS IN JUNE

The SACCI Business Confidence Index (BCI) rose to 94.9 pts in June from a previous 93.2 pts. A stronger USDZAR in June helped to increase the export merchandise sub-index, particularly exports in new vehicle sales. However, the stronger USDZAR also resulted in a decrease for four of the six financial sub-indices as the value of SA shares held abroad declined. The rebound in confidence might not be sustained, however, as a number of key economic and political risks still persist.

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