INVESTORS REMAIN CAUTIOUS AFTER TRUMP INAUGURATION
Last week saw the IMF release their World Economic Outlook report, in which they revised their economic growth higher in many countries. They expect global growth of 3.4% in 2017 due to an improved outlook on the growth in China as well as the anticipation of a stimulus injection that the new US President Donald Trump is expected to introduce. Brent crude traded -0.07% lower at USD55.47/bbl owing to global fears of increased shale production in the US.
The main focus however, was on the inauguration of the 45th US president, Donald Trump, which took place last Friday. With this increase in global political uncertainty, investors flocked into safe-haven assets evidenced by the 1.08% increase in the price of gold (closed at USD1216/ounce).
Various Fed board members gave direction on future Fed policy. Philadelphia Fed President Patrick Harker said three rate hikes this year would be appropriate as the US economy is displaying considerable strength, confidence is strong and the labour market is near full health. Fed Governor Lael Brainard then mentioned that if fiscal stimulus (a US budget deficit) caused faster growth and inflationary pressure under the new Trump admin-istration, the Fed would be more aggressive in hiking rates. The benefits of such a policy (an increase in fiscal spending) would be a more efficient workforce leading to faster future growth which will eventually lower the budget deficit.
In economic news, US CPI in December squared with expectations at 2.1% y/y, up from 1.7% y/y in November. This was a fifth consecutive increase in inflation. Industrial production also increased from -0.7% y/y in November to 0.8% y/y in December.
In EUROPE, the ECB kept interest rates unchanged at -0.4% as expected. ECB President Mario Draghi added that the ECB would react to policies and not statements made by the new US president and continued that he was not worried about the pick-up in inflation as it was mainly attributed to the increase in energy prices. The UK Prime Minister, Theresa May, then revealed her plans for when the UK leaves the EU single market. A restriction on immigration from Europe and setting up free trade deals with counties outside of Europe were the main ideas for the UK once Article 50 is triggered. UK inflation increased 1.6% y/y in December, beating market expectations of 1.4% and up from 1.2% y/y in November. Rising transport costs and increasing food and raw materials prices, owing to a weaker pound, were cited as reason for the increase in inflation.
JAPAN experienced its strongest growth since March 2014 when industrial production for November printed at 4.6% y/y. This matched market expectations and beat the October print of -1.4%, pointing to a healthier Japanese economy. In the meanwhile, the CHINESE economy expanded by 6.7% y/y in 2016 despite global fears of a severe slowdown in China about a year ago.
RETAIL SALES SLIGHTLY UP, CONFIDENCE REMAINS LOW
In their World Economic Outlook report, the IMF also revised the growth forecasts for South Africa higher to 0.8% in 2017 and 1.6% in 2018, from 0.3% in 2016. The IMF noted that economic activi-ty is expected to increase in emerging and developed economies in 2017 and 2018 (after low growth in 2016), but is heavily dependent on the policy stance in the US and how this spills over into the global economy.
In economic news, Statistics SA released mining production data for November. Markets were expecting mining production output to have contracted -0.9% y/y from -2.9% in October. In the event, the print of -4.2% y/y in November came in substantially below market expectations. The decline was driven by falling production in platinum group metals, iron ore and gold, while manganese ore made a positive contribution.
Statistics SA thereafter released December CPI figures. Market consensus was for CPI to have moderated from 6.6% y/y in November to 6.5% in December. The actual print for December overshot expectations with a print of 6.8% y/y. The primary contributors came from price increases in housing and utilities (5.6% y/y), recreation and culture (7.6% y/y) and from restaurant and hotels (7.1% y/y), while the transport component detracted from overall inflation.
Retail sales for November came in at 3.8% y/y, beating market expectation of -0.4% and up from the October print of -0.2% y/y. The large increase in retail sales emanates from robust growth in general dealer sales (increased 4.7% y/y in November). Interestingly, as retail sales make up about 6% of total GDP, a print that is slightly positive for December would mean that retail sales could make a positive contribution to Q4 2016 GDP.
Q4 2016 consumer confidence data, released by the Bureau for Economic Research, printed -10pts, which was lower than the Q3 2016 print of -3pts and below market expectations of -2pts. The sub-component of the index falling the most was the economic position of SA during the next twelve months (-23pts in Q4 2016 from -3pts in Q3 2016).
The JSE All Share Index closed the week -0.49% lower. The financial and listed property boards were the main detractors falling -1.69% and -1.04% respectively whilst the JSE Resources 20 index (0.24%) and the JSE Small Cap index (0.41%) both made positive contributions.