GLOBAL MARKETS AT RECORD LEVELS

There were multiple news headlines of note this week: rhetoric regarding the latest North Korea nuclear test escalated, some fairly dovish comments were made by US Fed speakers, the looming debt ceiling continued to cause concern, a decision was made to end the DACA programme, and the threat of Hurricane Irma resulted in Florida announcing a state of emergency.

NORTH KOREA: PREPARING ANOTHER MISSILE LAUNCH?

South Korea’s intelligence agency reported that North Korea might be in the process of preparing another intercontinental ballistic missile launch. US ambassador to the UN, Nikki Haley, said that Kim Jong-Un is “begging for war” and that “only the strongest sanctions will enable us to resolve this problem through diplomacy”. President Trump and South Korea President Moon have since agreed to “maximise pressure on North Korea using all means at their disposal”. Trump has also agreed that South Korea may buy “many billions of dollars’ worth of military equipment and weapons from the US”.

US: DOVISH FEDSPEAK, DEBT LIMIT EXTENDED UNTILL DECEMBER

Fed Governor Brainard said in a speech in New York that “my own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target”. She also said that “I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective”. Minneapolis Fed President Kashkari added to the dovish tone, noting that: “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations.” Regarding the debt limit, President Trump agreed to a deal initially proposed by the Democrats that extends government spending and debt limit to 15 December 2017, adding it to a hurricane relief bill.

UK: ENDING FREE MOVEMENT OF LABOUR AFTER BREXIT

Key news this week was Britain’s intention to end the free movement of labour immediately after Brexit and bring in restrictions to prevent all but highly-skilled EU workers from entering. This was part of an 82-page Home Office Proposal which explained how the UK intends to approach immigration. In terms of data, the construction PMI for
August came in slightly lower than expected at 51.1 pts (vs. 52.0 pts expected), and the Sentix investor confidence index came in above expectations at 28.2 pts (vs. 27.0 expected, 27.7 previous). The service PMI for August fell to an 11-month low of 53.2 pts (vs. 53.5 expected), but the composite PMI was in line at 54.0 pts, which suggests GDP growth has continued at the 1.7% YoY rate of the second quarter.

EUROPE: NO CHANGE IN ECB REFINANCING RATE

The ECB meeting on Thursday confirmed that there will be no change to policy, but President Draghi did imply that a decision on tapering would be made at the ECB’s October meeting. Draghi remains comfortable about the strengthening euro, believing it to indicate an improvement in the region’s economy. Where data was concerned, the Eurozone PPI for July came in lower at 0.0% MoM (vs. 0.1% expected) and 2.0% YoY (vs. 2.1% expected). The final Eurozone service sector PMI for August came in at 54.7 pts (vs. 54.9 pts previous). As the manufacturing PMI was confirmed at 57.4 pts, the final reading for the Eurozone’s composite PMI was 55.7 pts, remaining the same as for July.

DOMESTIC MARKETS

SA BUSINESS CONFIDENCE LOWEST IN 32 YEARS

This week, the SA SACCI Business Confidence Index (BCI) for August came in at 89.6 pts from a previous 95.3 pts, its lowest in 32 years. The index reflects business’ concerns that the country is not likely to do as well as other global opportunities. As BCI is a direct function of investment, the drop in confidence will affect investment in the short to medium term.

AUGUST MANUFACTURING PMI SLIPS INTO CONTRACTION

The Standard Bank manufacturing PMI for August fell to 49.8 pts (vs. 50.1 pts in July) returning to contractionary territory. This means that future growth in private sectors in the economy will be weak due to declines in new orders, new export orders and output. Inventories increased to outstrip demand, while employment posted a surprising
increase. For the first time in the history of the Standard Bank PMI, staff costs dropped below 50 pts. This could suggest that companies are retaining their workers, but putting the brakes on production and paying workers less
as productivity falls.

GDP GROWTH FOR Q2:2017 AT 2.5% QOQ

In the second quarter of 2017, GDP growth came in at 2.5% QoQ (SAAR) from a previous upwardly revised -0.6% QoQ (SAAR). The positive figure is attributed to the fact that there were more sectors which added to growth, and consumption climbed significantly, with strong retail sales in Q2.

Analysts are sceptical whether this reversal can be sustained, due to persistently weak demand and an expectation that mining production will decline in the third quarter of 2017.

JULY MINING PRODUCTION DISAPPOINTS

Mining production rose 0.9% YoY in July (vs. 2.0% YoY expected, 1.3% YoY previous). Positive gains imply that commodity prices have remained robust, but analysts remain concerned that the industry may falter in the third quarter this year.

ANC SUCCESSION UNCERTAINTY COULD EXTEND

For the ANC’s elective conference to take place this December, at least 70% of the ANCs branches must pass audits. The ANC Secretary General Gwede Mantashe said this week that only six out of the nine provinces had ompleted audits of their membership numbers. This is something to keep an eye on as December looms closer, because uncertainty on succession within the ANC could be further drawn out and negatively impact investor and
consumer sentiment.

JSE FALLS 1.06%, EM MARKETS SLIP 0.02%

By Friday, the JSE had slipped 1.06%, with 1.74% losses in financial shares weighing on the index. The rand had edged up 0.08% to the US dollar by the end of the week, closing at R12.96 to the greenback. The MSCI global index fell 0.06%, while the MSCI EM index dropped 0.02% for the week.