WORLD’S LARGEST ECONOMIES PITCH GLOBE IN WORST GROWTH
The international outlook remains subdued and the slower growth could get worse. This was the word from the International Monetary Fund (IMF) in a statement released at the end of August ahead of a G20 meeting in the next days. According to the statement the failure of policy makers to fix deep-rooted problems in the world’s largest economies has pitched the globe in the worst slow-growth rut in nearly three decades. “The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time,” said IMF Managing Director Christine Lagarde.
In the US the S&P500’s five-month long rally came to an end as the index retreated 0.1% for the month. This was despite hitting an all-time high on 11 August when the S&P500, Dow Jones Industrial Average and the NASDAQ all closed at record levels, which hadn’t happened since December 1999. The Dow was also down for the month, closing at 0.2% below July. The NASDAQ bucked the trend and was up by 1% for the month. The FTSE 100 gained 0.8% month on month, the DAX rose 2.5% for the month while the CAC ended the month unchanged.
China’s Shanghai Composite Index closed 3.6% compared to the previous month; the Hang Seng was up by 5% and the Nikkei 1.9% higher for the month.
The other big news from the US was the announcement by US Federal Reserve (Fed) Chair Janet Yellen that US rate increases would be gradual. Yellen said that the case in favour of raising rates had strengthened in recent months due to continued solid performance on the labour market and the outlook for economic activity and inflation.
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BUMPY RIDE FOR RAND & MARKETS AS POLITICAL DRAMA UNFOLDS
After rallying for most of the month the rand recorded its worst performance in months in the last days of August while benchmark government debt slumped by the most this year as a feeling of déjá vu gripped the local market. The concern that Finance Minister Pravin Gordhan may lose his job dominated news for days and weighed on currency and bond markets. Added to this the news from the USA that interest rates there may rise sooner than initially expected also pummelled the rand. The currency ended the month 6% lower than at the end of July and dropped to its weakest level in nearly two months against the dollar. For the year to date the rand ended August 5% up following the disastrous decline in December 2015 when the President sacked the former Finance Minister, Nhlanhla Nene.
The political news also delivered a general downward trend on the JSE. The All Share Index lost 0.1% compared to July (up 4% year to date) while the Indi-25 posted a 1.5% gain for the month (year to date at (-0.5%). Financials were hardest hit by the Gordhan/Hawks spat and the Fini-15 ended at 2.9% down from July. Year to date the Fini-15 is at -3.7%. Resources also declined with the Resi-10 down by 0.7% for the month, although the index is up 22.5% year to date. Harmony Gold Mining (+236.2%) remains the best performing share for the year to date, followed by Kumba Iron Ore (up 224.9% year to date) and Assore Ltd (+167.5%).
Other than inflation being slightly lower than what the market expected there was very little positive economic news. The Bureau for Economic Research (BER) released the seasonally adjusted Barclays Purchasing Managers’ Index (PMI) which showed a decline by 6.2 index points to reach 46.3 in August.
The BER commented that the drop was somewhat surprising after the PMI managed to remain above the neutral 50-point mark during the preceding five months. The decline was driven by a steep fall in the new sales orders index and a second straight monthly decline in the business activity index. Both of these indices are now well below the neutral 50-point mark.
Vehicle sales continued to decline, largely attributable to on-going weakness in the new car market. August 2016 aggregate new vehicle sales at 46 146 units declined by 4 839 vehicles, or a fall of 9.5% compared to the 50 985 vehicles sold in August last year. Aggregate industry export sales at 35 620 vehicles for August, 2016 reflected, as expected, a massive improvement of 7 508 vehicles or an increase of 26.7% compared to the 28 112 vehicles exported in August last year. The consumer driven new car market had continued to experience severe pressure during August and at 30 356 units reflected a decline of 4 567 cars or a fall of 13.1% compared to the 34 923 new cars sold in August last year.
Thanks to the Gordhan issue and the announcement by SA’s biggest private fixed-income money manager, Futuregrowth, that it has suspended loans to the largest state-run enterprises, many commentators have said that the likelihood of a ratings downgrade towards the end of the year is now a much stronger possibility.