INFLUENCES ON WEEKLY GLOBAL MARKET MOVEMENTS
► With the US and China now fully engrossed in a trade war and global markets on edge over the past few weeks in the run up to this event, last week was somewhat subdued. However, volatility surrounding news flow on this topic continued to move markets and it would not be surprising if this was the case for the foreseeable future. At one stage last week, the dollar weakened, taking pressure off emerging market curren-cies as practitioners were most likely assessing the full impact these policies will have on the global economy. This was unfortunately short lived as trade war concerns resurfaced when the Trump administration released a list of further Chinese imports that they would place tariffs on to the value of USD200Bn. All the while, China has kept their cards close to their chest. A distinctive strategy they may pursue in response to Trump’s tariff mayhem could be to promote the Chinese economy as an attractive investment destination instead of aggressively placing tariffs on US imports. The jury is out how this will unfold. One thing for sure, markets (bond and currency) will continue to be volatile as news breaks.
► European Central Bank (ECB) Governor Mario Draghi commented on monetary and quantitative easing when stating that inflation should move towards the target 2% level over the medium term. He added that for inflation to remain on a sustained adjustment path, the ECB would need to be patient, persistent and prudent with implementing their policies. Markets should see this as a positive as unexpected interest rate movements are less likely.
► In the UK, Brexit talks took a turn for the worst when high profile resignations forced UK Prime Minis-ter Teresa May to reshuffle her cabinet. As part of these resignation, Foreign Secretary Boris Johnson and Brexit Secretary David Davis, who both played an integral role in Brexit negotiations with the EU, ended their tenure at the Houses of Parliament. Adding insult to injury, US President Trump is due for his first official visit to the UK. After Teresa May released her Brexit proposal, Trump allegedly retorted that the proposal would “kill” any bilateral agreements between the US and the UK. Trump has previously indicated that the UK would be ahead of the EU in the queue of bilateral trade agreements with the US. Teresa May now finds herself in a tough position when acting in UK’s best interests by balancing trade deals between the US on one hand and the EU on the other (assuming the EU agree to her proposal, which is still very much up in the air).
► US inflation for June rose to 2.9% y/y from 2.8% posted in May. Despite matching market expectations, this was the highest inflation print since February 2012. The rising oil price was the primary reason for the pick up in the general price level. US inflation is steadily moving towards the Fed’s 3% target level. Markets are pricing in another two more rate hikes this year.
► Investor sentiment in the EU picked up in June. This was rather surprising owing to uncertainty sur-rounding Brexit and the trade friction between the EU and the US.
► In the east, Chinese inflation squared with market expectations in June coming in at 1.9%. This was slightly above the 1.8% reported in May as food prices rose at a faster pace. China’s trade balance followed this where a surplus of USD41.61Bn was reported. This surprised on the upside as markets were expecting a surplus closer to USD27.9Bn. Interestingly, Chinese exports continued to rise in the face of trade war concerns with the US.
► The JSE All Share index ended the week trading -1.65% lower. The JSE Resource 10 index was the main detractor losing -2.70%. However, the industrial and financial boards both also gave back -1.57% and -0.76% respectively.
► Wage negotiations between the unions and Eskom remain deadlocked. Last week saw Eskom reject a wage increase offer of 7% for this year, 6.5% for next year and 6.2% for the following year. The unions, who initially wanted 9%, would come down to 8% for this year and then 8.5% for each of the following two years. Negotiations between the two parties have apparently reached a sensitive stage with unions having requested to meet with Finance Minister Nhlanhla Nene as part of the process. In the meantime, this will continue to be closely followed.
► At his official visit to Nigeria, President Cyril Ramaphosa went directly against nationalist policies implemented by the Trump Administration when he pushed for globalisation and open market trade. More specifically, after signing a free trade deal, he urged Nigeria to sign a continent-wide free trade deal allowing goods and services to move freely within Africa and creating a single continental market for the free movement of business people. If all goes according to plan, this stands to be the world’s largest free trade area.
► SACCI business confidence in June continued to slide and has been on a downward trend since Jan this year. The main culprit was weaker than expected business sentiment whilst the weaker rand exchange rate also did no favours to the index.
► Despite contracting, mining production came in slightly higher than expected for May. This was the third month in a row that the sector was in contraction. Risks to the sector that are most likely dampening foreign investment remain the unre-solved Mining Charter as well as land expropriation without compensation.
► Manufacturing production also beat expecta-tions for May. The manufacturing sector has a significant weight in the total GDP calculation, so this is a promising sign for Q2 2018 GDP growth.