Geopolitical tensions continued last week, as in an act of defiance to the latest round of sanctions imposed by the UN. North Korea fired another missile that flew over Japan, which again set off cautionary alarms and caused people there to take cover Asian markets initially dipped as would be expected. Quite astonishing however, this was short lived as markets recovered and continued as normal. The surprisingly low market impact this had could be due to the fact that tensions started more than a month ago, which caused cash to flow into safe haven assets back then. However, there is no doubt that geopolitical tension is at heightened levels and investor complacency is thus at one’s own peril.

In the UK, the BOE kept interest rates on hold at 0.25% as expected with four of the six BOE members voting as such. A unanimous decision was then made to keep asset purchases unchanged adding an element of calmness to the market. However, future interest rate hikes were alluded to as members expressed their desire to pull back
monetary stimulus and return to the inflation target of 2% (currently 2.9%). They added that this would be done gradually as the UK consumer is presently facing falling disposable income (which would bring inflation lower down the line) and the UK and EU still need to finalise UK’s exit from the EU. The pound closed the week trading at 1.36/USD, which is an appreciation of 2.9%.


Brent crude oil closed the week 3.42% up at Safe-haven assets like gold and the yen were little effected by the actions out of Pyongyang (as mentioned above) and closed at USD1320/ounce (-2.00% over the week) and 110.8/USD (depreciation of 2.8%) respectively.

In the US, inflation for August came in at 1.9% y/y. This was above market expectations of 1.8% as well as the July figure of 1.7%. Stubbornly low inflation in the US has been a vital factor in the Fed’s decision not to raise interest rates too quickly. The fact that inflation seems to eventually be coming through makes the decision easier now and thus increases the likelihood of another rate hike this year. In a similar vein, the US 10Y treasury yield ended the week 0.14% higher at 2.20%.

Inflation in UK expected to come in at 2.7% y/y. In the event, markets were surprised with the print of 2.9%. A weaker pound since the Brexit vote last year has been the main source of UK inflation.

Economic data out of China disappointing. Fixed asset investment in August grew at its slowest pace since 1999 and came in at 7.8% y/y vs 8.3% in July. This was followed by retail sales as well as industrial production figures both coming in below market consensus. As China is the largest consumer of commodities globally, the copper price fell -3.82% over the week as a knock-on effect.



Despite heighted risks, the global environment remains supportive of emerging market flows.

JSE All Share index ended the week flat (+0.02%). The sub-indices traded relatively mixed with industrials rising 0.67%. On the other hand, the JSE Resource 10 and JSE Financial 15 indices lost -0.54% and -1.02% respectively.

Finance Minister Malusi Gigaba cautioned that the Q2 2017 growth (which took South Africa out of a recession) was both insufficient and unsustainable. He added that tax revenue collection is therefore likely to be lower and could lead to a revenue shortfall. The jury is out as to how the National Treasury will attempt to manage this shortfall as the global rating agencies will be monitoring this closely in their ratings process.

Moody’s on corporate credit. They released a note advising that domestic policy uncertainty was adversely effecting business and consumer confidence and was the likely cause of constrained credit domestically and thus the low growth environment.They added that corporate businesses with enough liquidity were reducing exposure to South Africa and instead, investing offshore. This does not bode well for South Africa’s general outlook.


The Bureau of Economic Research Business Confidence Index posted 35pts for Q3 2017, above the 29pts for Q2. Although one can take heart from the increase, it should be viewed in the context of subdued business activity, weak domestic demand and an elevated political uncertainty.

Retail sales for July came in at 1.8% y/y. This was below the June figure and surprised on the downside. Although inflation in South Africa has been decreasing, this indicates consumers in general are constrained and are therefore unable to support retail sales growth.

South Africa’s current account deficit widened in Q2 2017 to 2.4% of GDP from 2.0% in Q1. Markets were expecting a number closer to 1.7% and were therefore disappointed.