The US Fed, the Bank of Japan as well as the Bank of England had meetings last week to decide on their respective monetary policies. Market consensus was for interest rates to remain where they were and markets were not surprised with the rates decisions. The UN Food and Agricultural Organisation’s global food price index revealed that food prices increased by 16.4% y/y in January, mainly due to the price increases in grains and sugar and the reduced supply from some of the world’s leading exporters. In the meanwhile, Fitch was the last of the major global ratings agencies to downgrade Turkey sovereign rating to below investment grade when they lowered Turkey’s rating from BBB- to BB+ with a stable outlook.

US Core Personal Consumption Expenditure (PCE) index for December matched the November figure of 1.7% y/y. The PCE price index is the Fed’s preferred measure of inflation and looks at consumer spending in the US excluding spending on food and energy. President Trump signed an executive order banning refugees and travellers from Iran, Iraq, Syria, Sudan, Libya, Yemen and Somalia from entering the US. He then fired his Attorney General Sally Yates for refusing to enforce his travel ban, which pushed the Dow Jones Industrial Average (DJIA) below 20 000. US non-farm payrolls increased 227k in January, up from 157k in December and above market expectations of 175k.

The unemployment rate in the Eurozone fell to 9.6% in December from 10.5% in November. The lowest unemployment rates were reported in Germany (3.9%) and the Czech Republic (5.2%) while Greece (23%) and Spain (18.6%) had the highest unemployment rates. Inflation in the Eurozone reached a four year high in January (1.8% y/y). This was above December’s CPI (1.1% y/y) and it is likely that the ECB will now be under additional pressure as it is facing calls to end its quantitative easing program. In the UK, the Bank of England increased their growth forecast for 2017 to 2% from 1.4%. Governor Mark Carney said that he expects inflation to increase above the 2% target owing to a weaker pound and action will be taken if inflation rises significantly.

In the East, Japanese industrial production in December returned 3% y/y, from 4.6% in November. The Bank of Japan increased their 2017 growth forecast to 1.5%, above the previous forecast of 1.3%, and said the 10y bond yield is expected to remain at 0%. Markets were expecting a figure of 51.8pts for the Chinese Caixin manufacturing PMI for January but were disappointed with the actual reading of 51pts. This was below the 51.9pts of December.

The MSCI Emerging Markets index closed the week 0.32% higher, whilst the MSCI World index added 0.12%.


In economic news, South Africa’s budget swung into a surplus of R 22.7bn in December 2016 from deficits of –R16.3bn and –R30.9bn in November and October. Revenue reported was R143.1bn in December versus expenditure of –R120.5bn.

The December balance of trade was thereafter released. Markets were anticipating a surplus of R6.3bn from the deficit of -R1.1bn the month before. In the event, the trade surplus of R12bn in December surprised on the upside. Exports dropped -6.1% m/m in December owing to lower exports of precious metals, machinery and vehicle. However, imports fell -19.6% m/m due
to less electronic, chemical and base metal products being imported.

The Barclays manufacturing PMI for January returned 50.9pts, which is above the 50pt benchmark level indicating that manufacturing is in expansionary territory. Markets were surprised by this reading as they were expecting 47.5pts. The positive reading stemmed from sub-component increases in business activity, future expectation of business conditions and supplier performance.

The good news did not end there. January vehicle sales released by NAAMSA printed 3.7% y/y, which was the first increase in vehicle sales in fourteen months. Markets were expecting a -10.8% y/y fall in vehicle sales and were pleasantly surprised with the print. The largest increase in vehicle sales came from the sale of buses (+40% y/y), passenger vehicles (+4.7% y/y) and light commercial vehicles (+1.6% y/y).

This was followed by the release of the Standard Bank PMI for January of 51.3 pts, which was down from December (51.6 pts) but it was the fifth straight month of growth.

The JSE All Share index closed the week -1.34% down. The main detractors were the resources and the financial boards loosing -3.0% and -2.1% respectively. Focus now moves to the State of the Nation speech on Thursday. If President Jacob Zuma gives any mention of a market unfavourable cabinet reshuffle, it could weaken the rand and increase government bond yields substantially.