Global risk appetite was still intact this week, spurred by global central banks’ quantitative easing policies. The S&P 500 Index hit a record high of 2193 while developed market bond yields remained close to record lows. The 10y US treasury ended the week trading at 1.59%, the German 10y bund at 0.03% and the Japanese equivalent at -0.07%.

Economic news released in the US disappointed. US advanced retail sales came in flat for July m/m when expectations were for a rise of 0.40%. Additionally, US surveyed inflation expectations were subdued. The 5-10yr inflation expectation also came in flat while the 1y number moderated to 2.50% y/y in August, down from 2.70%y/y in July. However, because the Fed closely monitors these prints when deciding on interest rates, this should mean a lower probability of a hike in September which is positive for global market sentiment.

In the meanwhile, there were hawkish comments from William Dudley of the New York Federal Reserve ahead of the release of the Federal Open Market Committee (FOMC) meeting minutes. He expects growth to perk up in the second half of this year and indicated that an earlier than expected hike from the Fed would be possible. Minutes released from the 27 July FOMC meeting lacked clear direction, with the committee divided on future rates policy. Some in the committee were aligned with William Dudley’s hawkish comments while others noted that current subdued inflation gave the Fed more than enough time to react.

Eurozone policy makers said that although the economy is on track to a steady recovery, they are monitoring risks stemming from the aftershock of Brexit and the health of the European banks. They also hinted that the ECB would keep loose monetary policy for a while longer in order to lubricate the Eurozone recovery.

In other economic news, Q2 GDP data released for Japan disappointed. This print came in at 0.2% q/q, significantly lower than market expectations of 1.7% q/q. The main detractors were net exports as well as a fall in business inventories, while Japanese industrial production still remains in negative territory. Further south in the Pacific, the Reserve Bank of Australia released minutes from their policy meeting citing lower housing credit growth and an easing in housing price pressures as additional reasons for cutting interest rates. Their goal is to spur economic growth in a low-inflation environment.

Brent crude oil ended the week 8.32% higher at USD50/barrel. These gains have come from speculation that there may be a production freeze ahead of the OPEC meeting next month. Russia has also been in discussions with Saudi Arabia about possible methods to stabilise the market by cutting production. With risk-on trades once again dominating sentiment, the MSCI Emerging Markets index (0.03%) outperformed the MSCI World index (-0.24%) over the week.


It was a relatively quiet week on the economic front in South Africa, with the only significant release being Stats SA’s June retail sales figures. The market consensus for this print was for a moderation to 3.6% y/y from 4.5% in May. In the event, it came in significantly lower than expectations at 1.7% y/y, which is a clear sign that South African consumers are struggling. Factors leading to the disappointing figure were tighter financial conditions, higher unemployment and a subdued growth in household real disposable income. The retail sector is therefore only expected to make a small contribution to South Africa’s Q2 GDP.

With the municipal elections now out the way, coalition talks between parties are nearing a conclusion. The EFF has decided not to enter into coalitions with any party, which will make it impossible for the ANC to run the Johannesburg, Tshwane and Nelson Mandela Bay metros.

Furthermore, the EFF stated that they would vote in favour of other opposition parties, including South Africa’s main opposition party (the DA), which means that the above mentioned metros will all have DA mayors. Focus will now be on government policies to avoid a sovereign downgrade, and what the ruling party will do to make up lost ground as the 2019 national elections approaches.

The JSE All Share index was flat last week, in line with other emerging markets. The industrial’s board was up 1.01% while Financials (JSE Financial 15 index) and Resources (JSE Resources 20) were both down -1.46% and -0.54% respectively. In the week ahead, South Africa CPI inflation will be highly anticipated as market expectations are for a 20 b.p. fall in this number to 6.1% y/y.