► In what now seems to be the norm, US President
Donald Trump once again made comments that
added volatility to global markets. Last week saw
Trump mentioning that he was concerned over the
strengthening dollar, which had the opposite effect,
to some extent, against most major currencies. He
went on to question the Fed’s tightening of monetary
policy saying that it would make the US less competitive.
This was then quickly followed by a statement
from the US government stating they respect the
Fed’s independence and that they would not interfere
with their policy decisions. As the week came to
a close, the dollar had strengthened to end at 1.17/
EUR (+0.29%) and 1.31/GBP (+0.78%).

► Kansas City Fed President Esther George maintained
her hawkish stance when she stated that the
Fed should continue to gradually raise interest
rates. When asked how far the Fed should go considering
the uncertainty surrounding the US trade policy,
she was unable to give further clarity. Fed Chair
Jerome Powell’s testimony before the US senate
banking committee followed on from this. As part of
this process, Powell mentioned that he expects the
gradual pace of US interest rate hikes not to be
derailed by the new trade policy implemented by
the Trump administration as the counterbalance to
lower expected growth (caused by the probable
fall in global trade) is most likely the US governments
fiscal stimulus injection.

► Two primary factors that resulted in significant
depreciation of emerging market currencies over
the last while have been firstly, expectations for
a higher global interest rate environment and
secondly, the aforementioned trade war between
the US and China and between the US and the EU.
Regarding the second point, the Chinese yuan fell to
levels not seen in the last year as risk-off sentiment
resulted in capital outflows. The yuan ended the
week at 6.77/USD (-1.2% down). Interestingly, the
weaker currency makes Chinese exports cheaper and
more competitive, which goes directly against what
the Trump administration is trying to achieve by
imposing tariffs. This could potentially lead to additional
tariffs down the line. The saga will no doubt be
closely monitored by global market practitioners.

► In China, GDP growth for Q2 2018 squared with
expectations of 6.7% y/y. This was slightly below the
6.8% reported for Q1 2018 and was the weakest
growth since Q3 2016. Undoubtedly, the trade war
between China and the US adversely impacted the
GDP figure. At the same time however, the Chinese
government has been trying to deleverage financial
risk, which would also have a negative influence.

► Staying in the east, Japan’s trade balance
swung into surplus (+JPY721.4Bn) in June from a –
JPY580.5Bn deficit in May. Markets meanwhile, were
expecting a surplus of +JPY534.2Bn and were therefore
pleasantly surprised. Japanese inflation for June
matched the May figure of 0.7% y/y, which was
below consensus of 0.8%. This again shows how
stubbornly low inflation is in Japan and it makes
it more difficult for the Bank of Japan to taper quantitative


► After struggling for most of the week, the JSE All
Share index fought back on Friday to end 1.12% in
the green. The largest detractor from performance
was the JSE Resource 10 index, which lost -0.91%
over the period. On the opposite side of the
spectrum, the industrial and financial boards both
staged a strong resurgence towards the end of the
week and ended 2.12% and 1.77% up respectively.
Property continued to be out of favour with the SAPY
index falling -0.99% over the week. Astonishingly, this
sector has now shed about one quarter of its market
value year to date. The R186 bond closed at 8.72%,
which was somewhat flat for the week after significant
selling pressure plagued the instrument year to
date. It has risen by 1.46% over this period.

► At the Monetary Policy Committee meeting held
last week, the SARB acted as expected and kept
interest rates on hold. This was a unanimous
decision from all member of the committee. In a
similar fashion, SARB Governor Lesetja Kganyago was
rather hawkish. In his speech, specific mention of
inflation risk to the upside was made.
Backing this statement up were comments of the
rising oil price, a weaker rand (and its volatility) whilst
mention of geopolitical risks in the form a trade war
were also made. The SARB increased its inflation
outlook, albeit only marginally. According to
their Quarterly Projection Model (QPM), five 0.25%
interest rate hikes are projected by 2020 compared
to only four hikes as projected previously.

► Despite the SARB mentioning inflation risk is to
the upside instead of downside, inflation for June
undershot market expectations of 4.8% y/y when it
returned 4.6%. Nevertheless, the general price level
rose from 4.4% in May. The main culprit was higher
transport costs.

► June retail sales came in at 1.9% y/y in June from
0.5% reported in May. This was above market
expectations of 0.8%. Upon further investigation, it
became evident that sales of furniture and household
equipment were the main contributors. That said,
sales of textiles, clothing, foot ware and leather goods
also made positive contributions.