GLOBAL MARKETS

LITTLE PROGRESS MADE AT FURTHER BREXIT TALKS

This week saw Hurricane Harvey bring massive flooding to Texas. Harvey managed to take one-fifth of US oil refineries offline, including Royal Dutch Shell and Exxon Mobil, but US gasoline pric-es gained around 20% during the week to reach a new two-year high. Bloomberg reported that the costs of the damage could exceed $100 billion, compared to Hurricane Katrina which cost almost $120 billion, and Sandy at about $75 billion.

NORTH KOREA: FIRES MISSILE OVER JAPAN
On Monday night, North Korea fired several ballistic missiles, including one that flew over Japan’s island of Hokkaido. The missiles landed in the Pacific Ocean with no reports of damage. Japan’s Prime Minister Abe called the missile over Japan “an unprecedented and serious threat” and requested an emergency meeting with the UN Security Council. The increased geopolitical tension saw the yen strengthen, followed by gold which broke through to highs last seen almost twelve months ago.

US: Q2 GDP REVISED UPWARDS TO 3% QoQ
The Dallas Fed manufacturing activity index for August met forecasts at 17, with the hiring index moving down slightly from July’s 19-month high, and the capex index rising to its highest level since January. July wholesale inventories came in at 0.4% MoM (vs. 0.3% expected), while retail inventories fell 0.2% MoM. The Conference Board consumer confidence index for August was up to 122.9 (vs. 120.7 previous), the highest since December 2000 (excluding March this year). Second quarter GDP was revised upwards from 2.6% QoQ to 3.0% QoQ (vs. 2.7% expected) boosting through-year growth to 2.2% SAAR. Non-farm payrolls only climbed 156,000 in August vs. 180,000 expected.

UK: BREXIT TALKS REQUIRE MORE FROM BRITAIN
The next round of Brexit talks took place this week, but without much progress. EU’s chief negotiator Michael Barnier’s mandate means that the UK has to reach an agreement of its share of the EU’s 2014-20 budget, the Irish border and EU citizen rights before it can discuss its future relationship with the EU. Where data was concerned, the August Nationwide house price index came in at -0.1% MoM (vs. 0% expected) and 2.1% YoY (vs 2.5% expected). August’s inflation data was slightly higher than forecast at 0.2% MoM (vs 0.1% expected), raising the annual growth rate to 1.8% YoY (vs. 1.7%).

FRANCE: GDP FOR Q2: 2017 IN LINE WITH FORECASTS
France’s second quarter GDP met expectations, coming in at 0.5% QoQ, but revisions saw the annual growth rate slide to 1.7% YoY (vs. 1.8%). July’s consumer spend-ing was in line at 0.7% MoM, raising the annual growth rate to 2.1% YoY (vs 1.8%), the highest reading so far for 2017.

CHINA: MANUFACTURING STRONGER THAN EXPECTED
The August manufacturing PMI for China came in better than forecast at 51.7 pts (vs. 51.3 expected), and up from 51.4 pts in July. New orders and business activity rose during August, but the non-manufacturing PMI fell 1.1 pts to 53.4 pts. The Caixin manufacturing PMI for China in August came in a bit better than anticipated at 51.6 pts vs. 51.0 expected, and up from 51.1 in July.

DOMESTIC MARKETS

LARGEST MONTHLY BUDGET DEFICIT RECORDED SINCE 2004

By Friday, the JSE had risen 2.63%, with 2.11% gains in resource shares boosting the index. The rand had strengthened by 0.64% to the US dollar by the end of the week, closing at R12.96 to the greenback. The MSCI global index rose 1.09%,while the MSCI EM index gained 0.55% for the week.

DOMESTIC DEMAND SLOWS IN JULY
In July, private sector credit extension declined to 5.71% YoY (vs. 6.16% YoY previous). As demand is still low, the exchange rate pass through (ERPT) is likely to remain low, possibly below its historical average of 20%, at around 10%. A low ERPT could be positive for the inflation outlook and help to motivate future rate cuts.

LARGEST MoM BUDGET DEFICIT SINCE 2004
July’s budget balance number recorded the largest MoM deficit since at least 2004, coming in at R92.2 billon from a previous surplus of R15.4 billion in June, vs. expectations of a deficit of R66.1 billion. The National Treasury estimates an overall budget deficit of 3.3% of GDP for this fiscal year. Revenue collection year-to-date came in at 26.9% in 2017/18 (vs. 28.7% in 2016/17), while expenditure year-to-date came in at 32.9% in 2017/18 (vs. 32.8% in 2016/17).

Expenditure thus remained stable, despite the bailout to SAA of R2.2 billion in July, but revenue collection has declined by 1.8% year-to-date. Most of the tax revenue
collection, however, does happen closer to the end of the year.

TRADE SURPLUS HIGHER THAN EXPECTED… IN JULY
July’s South Africa’s trade surplus declined to R8.99 billion in July, from a downwardly revised R10.56 billion surplus in June, exceeding expectations of a R5.8 billion surplus. Exports dropped by 8.7%, while imports fell by 8%. Balance of trade averaged R47.26 million from 1957 until 2017, reaching an all-time high of R187.3 billion in May 2016 and a record low of -R23.4 billion in Jan 2015.

PPI INCREASES TO 3.6% IN JULY
Producer Price Inflation for final manufactured goods printed at 3.6% YoY in July 2017, an increase of 0.5% from June 2017 to July 2017. PPI peaked at 7.2% YoY in December 2016, before moderating to 4.0% YoY in June. The moderation in PPI may give the SARB more reason to cut interest rates in the following months.