IMPROVED MANUFACTURING BOOSTS CHINESE MARKET
The key news this week came from South Africa itself, with President Zuma’s removal of Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas, as well as six other government ministers, in a shock cabinet reshuffle announced at mid-night on Thursday. Gordhan and Jonas were accused of undermining the country and the economy while overseas on a foreign investment road-show, on the basis of a rather questionable intelligence report. After the announcement, the rand fell to near its worst weekly loss since 2015, trading at R13.60 to the US dollar on Friday morning. Home Affairs Minister Malusi Gigaba was sworn in on Friday night as replacement for Gordhan, with ANC MP Sfiso Buthelezi as his deputy.
VOLATILITY FALLS IN Q1
SA drama aside, analysts are noting a very calm start to the year from a global perspective, with the VIX down from 14.04 at the end of the last quarter to 12.59 at the close of Q1. In addition, the highest point reached by the VIX in Q1 this year ranks as the sixth lowest out of all the Q1’s for the last decade.
US: GLOBAL GROWTH DATA LIKELY TO ‘TRUMP’ POLITICS AS DRIVER
Despite the failure of President Trump’s healthcare bill last Friday, US markets still ended higher this week as investors set more store in positive global growth data than in the vagaries of politics. Consumer confidence rose +9.5 points to 125.6 in March, its highest since December 2000 – however, this data was collected before the failure of the healthcare bill. In its third and final revision, Q4 GDP was revised up to +2.1% quarter-on-quarter, annualised from +1.9%. Bullish sentiment seems to be changing though, due to remaining uncertainty around the inflation outlook, fiscal policy and Trump’s tax reform bill.
EUROPE: MANUFACTURING AND SERVICES BOOST PMI
Europe’s composite PMI for March climbed to its highest in six years at 56.7 points, exceeding expectations of 55.8 points, thanks to stronger manufacturing and services PMI’s. Helping to lead the upward move were France and Germany, though the latter also released a lower-than-expected CPI this week of +0.2% MoM instead of +0.4% MoM.
UK: BREXIT CLOCK STARTS
PM Theresa May triggered Article 50 this week, starting the clock on the two-year period for Brexit negotiations. The UK wants to reach agreement on a new deal with the EU27 alongside the terms of the exit as early as March 2019. However, limiting the fallout of the Brexit seems to be the main goal of the EU27, so negotiations are likely to be long and difficult as the two sides try to reach a compromise.
ASIA: CHINA’S PMI’S RISE, JAPAN’S RETAIL SALES FALL
In China, the manufacturing PMI for March rose to 51.8 (51.7 expected), its highest since April 2012. The non-manufacturing PMI also rose from 55.1 to 54.2, reaching its highest since May 2014. The positive PMI’s helped to boost Chinese stock markets. In contrast, February retail sales in Japan came in at 0.1% YoY, lower than the 0.7% YoY expected. Japanese supermarket and department store sales fell a further -2.7% YoY in February (-1.8% YoY expected) down from -1.1% in January.
RAND, BONDS WEAKER IN WAKE OF CABINET RESHUFFLE
RAND IS ROCKED BY POLITICAL UPHEAVAL
After a strong start due to weakness in the US dollar, the rand was beaten down in its worst weekly slide since 2015 following the sudden recall of Finance Minister Pravin Gordhan on Monday from an investment roadshow overseas, and his subsequent dismissal, along with his deputy and six other ministers, on Thursday night. Though the rand has since regained some ground, trading at R13.45 at close of play on Friday after touching R13.60 against the dollar, political uncertainty continues to plague the local currency. SA bonds, especially longer-dated bonds, weakened under the pressure, as investors worried about how the changes to the Finance Minister would affect the running of the National Treasury. New Finance Minister, Malusi Gigaba, has since promised to make no changes to the administrative leadership of the Treasury, and to remain on the government’s path of fiscal consolidation. The political upheaval has added a risk premium to the rand and to bonds, though local and international contexts are still positive.
SARB LEAVES INTEREST RATE UNCHANGED
On Thursday the SARB announced that they would leave the repo rate unchanged at 7%, in line with Bloomberg consensus. M3 money supply grew 6.63% YoY in February, less than the 7.9% YoY expected. Annual private sector credit grew 5.26%, after a rise of 5.52% in January, and missing expectations of 5.30% YoY growth. After the week’s political events, the FRA market is no longer pricing in a rate cut in 2017. Some analysts suggest that the Reserve Bank may continue to keep rates unchanged for some time, or even raise them, if US real interest rates and SA’s risk increase too much, as this would lead to greater weakness in the rand.
STATS SA ANNOUNCES AN INCREASE IN PPI
Stats SA reported the annual percentage change in the PPI for final manufactured goods as 5.6% in February, in line with Bloomberg consensus, and up 0.6% from January 2017 (vs. 0.5% expected).
SARS REPORTS A TRADE BALANCE SURPLUS FOR FEBRUARY
SARS released the February trade balance figures, reporting a surplus of R5.22 billion. The year-to-date trade balance deficit (1 January to 28 February 2017) is R6 billion, which is an improvement on a deficit of R23.62 billion for the comparable period last year. Exports totalled R87.79 billion for February, and exports year-to-date grew 7% to R168 billion, from R156.98 billion in the comparable period in 2016. February imports came to R82.57 billion, while imports year-to-date declined 3.7% to R174 billion, from R180.60 billion in the comparable period in 2016.
S&P GLOBAL SLASHES SA’S SOVEREIGN CREDIT RATING TO JUNK STATUS
IN an unprecedented step the world’s largest and most influential credit ratings agency S&P Global downgraded SA’s international sovereign credit rating to below investment grade. Commonly known as “junk status”, this could mean a wholesale flight out of SA’s capital markets. The decision by S&P, originally scheduled for June this year, was brought forward following on the firing of finance minister Pravin Gordhan by pres. Jacob Zuma last week. Late last night (Sunday) the rand was trading at R13,80 to the US dollar, compared with R12,20 a week earlier.