The price of gold reached levels last seen in November 2016 closing the week 1.83% higher at $1257/ounce. Brent crude oil closed the week 0.32% higher at USD56/bbl with the US Depart-ment of Energy releasing data indicating that US crude oil inventories for the week ending 17 February increased by 0.6m barrels from an increase of 9.5m barrels the week before.

This was substantially lower than market expectations of a 3.4m barrel increase. In Brazil, the central bank cut interest rates by 75bps to 12.25% for the second time this year and noted that despite economic indicators revealing mixed signals, it has started to see signs of short term economic stability. The Mexican peso meanwhile reached similar levels prior to the election of US President Donald Trump and it closed at 19.91/USD , an appreciation of 2.66% for the week.

The February Federal Open Market Committee meeting minutes were released last week. In general, markets saw this as less hawkish than expected, which helped emerging market curren-cies. However, there was a clear signal that a rate hike would happen fairly soon due to robust employment and increasing inflation in the US. In his speech, Fed Governor Jerome Powell indicated that a March rate hike was definitely possible and added that he would prefer to see a stable Fed balance sheet until interest rates are high enough to allow easing in the next economic downturn.

In Europe, February Eurozone consumer confidence disappointed at -6.2pts versus market expectations of -4.9pts. Higher energy prices, inflation and a general increase in the cost of living were all culprits for the lower figure.

In other economic news, despite political uncertainty in France, healthy growth in Germany and France led to Eurozone Markit PMI for manufacturing increasing to 55.5pts in February from 55.2pts in January.

In the east, Japan’s January trade balance disappointed with a contraction of –JPY1.09tr. Markets were expecting a figure of –JPY625bn from a surplus of JPY640bn the month before. Growth in exports dropped to 1.3% y/y in January from 5.4% in December whilst imports rose 8.5% y/y in January from a drop of -2.6% y/y in December. China’s property prices increased 12.2% y/y in January, slightly slower than the December increase of 12.4% y/y, with the majority of cities in China experiencing price increases.

The MSCI World index closed the week 2.81% higher but was beaten by the MSCI Emerging Markets index, which closed up 3.84%.


The main focus last week was on Finance Minister Pravin Gordan’s 2017 Budget Speech. Markets were expecting further fiscal tightening through higher taxes and were not surprised.

In his speech, Pravin Gordan stressed that fiscal conditions continue to tighten (especially for con-sumers) and this is being compounded by tighter monetary policy. Gross Domestic Expenditure (GDE) is predicted to fall as is the current account balance through a decrease in imports.

commitment to lower the budget deficit was still stressed in the budget speech. The budget deficit target for 2017/2018 is estimated to fall to -3.1% of GDP, squaring with the target set in last year’s budget speech. However, the deficit is expected to drop to -2.8% of GDP in 2018/2019 and to -2.6% of GDP in 2019/2020.

South Africa’s primary budget balance is expected to remain in surplus in 2017/2018 at 0.4% of GDP and is expected to widen to 0.9% of GDP in 2018/2019 and 1.1% of GDP in 2019/2020.

This is vital for South Africa to maintain its investment grade sovereign rating. On the expenditure front, Treasury is expected to cut expenditure by ZAR26bn in 2017 from a cut of ZAR3.3bn in 2016. The government’s target for the expenditure ceiling is however still intact. Total issuance of domestic debt is expected to increase to ZAR36.5bn in 2017, which should increase the sup-ply of South African government bonds.

In economic news, market consensus was for PPI inflation in January to have dropped to 6.6% y/y from 7.1% y/y in December. In the event, markets were pleasantly surprised with the January figure of 5.9% y/y. The main contributions were from food products, beverages, tobacco and petroleum.

The JSE All Share Index closed the week down 1.18%. The main detractors were the JSE Resource 20 and the JSE Small Cap indices, both falling 4.65% and 1.62% respectively, whilst the JSE Financial 15 index lost 0.25%.