► Global markets continued to sell-off last week with
the Nasdaq and the Dow Jones Industrial Average indices
losing -2.37% and -1.26% respectively. Trade war
concerns between the US and China was once again the
key theme. Last week saw the US draft plans to limit
Chinese ownership of US companies to 25%, in an
attempt to protect intellectual property rights. As we
know, China has retaliated with tariffs on US imports,
which are due to come into effect early in July. In the
meanwhile, President Trump also threatened to place
tariffs on EU car exports. However, independent
research reports revealed that this could result in one
hundred thousand US job losses. More specifically,
tariffs on imported vehicles means that cars become
more expensive, which is likely to directly impact the
US automobile sector as US consumers cut back on
spending. Chinese equities were also hard hit by this
nationalization rhetoric. The Shanghai Composite index
ended the week trading -1.47% in the red. Safe haven
asset demand rose with the US 10Y Treasury yield ending
the week -0.03% down at 2.86%. Similarly, as cash
moved back to the US, the dollar traded firmer against
most major currencies as the week came to a close.

► St. Louis Fed President James Bullard reiterated that
the current US fiscal stimulus is only temporary and
hence, the Fed should not keep raising interest rates.
Minneapolis Fed President Neel Kashkari echoed the
dovish sentiment when he stated that interest rates
should not rise above the US natural rate. Numerous
other Fed officials gave statements last week and one
thing all of them seem to be agreeing on is that the
biggest risk faced by the US is the prospect of a fullblown
global trade war. Fed President Jerome Powell’s
speech followed on from this. Mention that inflation is
low and that the Fed are being rightfully cautious when
hiking rates was the key take-away from his speech.

► On the commodity front, the strong dollar has done
the gold price no favours (negatively correlated). Gold
fell to a six month low last week and ended at USD1253/
ounce (-1.35%). Brent crude oil on the other hand, rose
back up towards levels not seen in the last three and a
half years. The main reason for the rise in the price of oil
was due to supply disruptions in Canada but Trump’s
mention that Iran’s oil exports should be vetoed and
uncertainty surrounding Libyan oil exports also created
jitters and sent the oil price higher.

► Economic news in the US was mixed last week.
On the one hand, new home sales for May rose from
April and came in at the highest level since November
last year. On the other hand, markets were expecting a
GDP growth figure of 2.2% q/q for Q1 and were let
down with the 2% posted. The main culprits were lower
private inventory investment and a drop off in personal
consumption expenditure. Two conflicting factors could
influence US GDP growth going forward. Firstly, Trump’s
tax overhaul policy and the resulting tax cuts are likely
to push growth higher. On the contrary, Trump’s trade
policy and the imposition of tariffs should have the
opposite effect. It will be interesting to see which of
these has the over-riding impact going forward.

► The economic environment in the EU has been cooling
down of late. Business confidence for June was
again evidence of this, coming in slightly below the May

► In the east, the Japanese unemployment rate came
in ever lower and posted 2.2% in May compared to
2.5% in April. Markets were caught off guard as they
were expecting a May figure more or less in line with
the figure posted in April. One wonders when this will
translate into higher inflation.

► After trading in negative territory for most of the
week, the JSE All Share index fought back as the
week neared an end. As such, it ended 1.38% up in
what was a topsy-turvy week. The JSE Financial 15
index ended flat whilst the industrial board added
1.37% and was mostly led higher by Naspers. Much
the same, the JSE Resource 10 index rose by 3.89%.

► Global markets and risk sentiment have been the
driving force of the local market for most of this
year. Focusing only on domestic factors however,
since “Ramaphoria” which occurred at the end of last
year and the beginning of this year, some concerning
factors have crept in and weighed on the SA growth
outlook. For one, the debacle at Eskom, were
an illegal strike over wage disputes have led to
electricity load shedding. This is likely to hinder the
growth outlook.
Secondly, aspects of the new Mining Charter were
deemed to be “investment-negative”, which is also
concerning considering the high unemployment rate
and sluggish growth faced by SA.
Last, uncertainty surrounding the ANC’s land expropriation
without compensation no doubt is adversely
impacting foreign investment and poses further
reason for concern.

► Moodys released updated commentary last
week. To put things in perspective, Moodys is the
only global ratings agency that have SA sovereign
rating at investment grade and a downgrade would
trigger significant foreign cash out flows and a
further depreciation of the rand. Their commentary
is therefore vital and closely followed. In their commentary,
they alarming pointed out that President
Ramaphosa’s support for land expropriation without
compensation and the uncertainty surrounding this
policy continues to limit near-term investment
and could potentially lead to a pronounced fall in
investment should the final terms of land reform be
onerous to businesses. They are scheduled to update
their rating for SA in October, so this will keep
market practitioners sitting at the edge of their seats
until then.

► Y/y PPI returned 4.6% for May. This was above
both the 4.4% reported in April and as well as
market consensus. The primary driver emanated
from the rising oil price and more specifically, the
weaker rand resulting in an even higher rand oil
price. The rand oil price is now 60% higher over the
last year and added to this, above inflation wage
settlements should push general price levels higher.

► South Africa’s trade surplus for May came in at
ZAR3.52Bn from ZAR1.14Bn reported in April.
Exports rose by more than expected as demand for
SA vegetables, food stuff and vehicles rose.