Fears of rising US interest rates and the impact of the Trade War have caused the markets to retreat heavily this month. The global market sell-off that started in late September continued this week, and the tide was only stemmed by positive earnings announcements from Twitter, Microsoft, and Tesla. The extent of the correction tested the key 10% level – accepted to be the point at which a pull-back is still classified as a correction as opposed to a crash – to be similar in significance to that experienced in February this year.
Global News
- Up to ten discovered mail bombs have been sent to high profile Democrats and people critical of the Trump administration. Trump has been quick to blame the media. No one has been hurt so far, but the FBI has warned that more bombs may be in circulation.
- The National Institute of Economic and Social Research in the UK has published findings that the estimated cost of a no-deal Brexit scenario would cut off roughly 1.6% of Britain’s GDP. They have suggested growth of 0.3% in 2019 should Britain fail to find a deal.
- The European Central Bank downplayed Europe’s deceleration in growth, and Italy’s fiscal risks, in reaffirming its plans to normalise policy gradually. Markets are expecting a rate hike in the third quarter of 2019.
- The US GDP for the third quarter of this year grew at a rate of 3.5%, ahead of analysts expectations of 3.3%, but down from 4.2% in the second quarter. What is most interesting about this is how the Fed will react, and whether they will continue with further rate hikes.
- On Monday, two American Navy vessels sailed through the Taiwan Strait. This was no doubt an intentional taunt at China. China responded by having serval Chinese warships ghost the two American vessels.
- This week, the New York Times published an article detailing the struggle that White House aides have in getting President Trump to use a secure telephone line. He has been using multiple iPhones to talk to “old friends”. The concern is that Chinese and Russian spies maybe listening in on these conversations, enabling them to have the upper hand in trade deal negotiations and other strategies.
- Trump responded to these claims was saying that the New York Times was, “soooowrong”.
Local News
- South African finance minister Tito Mboweni delivered his first mini-budget speechthis week. It was pretty depressing, here are some facts he informed parliament of: there is an outstanding R11bn backlog in VAT refunds owed by SARS; and a hole of almost R30bn in the 2018/19 Budget through revenue under collection and excessive increases for public servants; municipalities owe R23bn to Eskom; SA’s Debt-to-GDP ratio will get to almost 60% by 2023; and this year’s projected GDP growth of 1.5% has been downgraded by half. Much of this was not a surprise, but the markets still reacted slightly negatively as the rand sold off by just over 2% and bond yields kicked up.
- The market is anticipating Moody’s sovereign review, it expected that they will appreciate the hard line that Treasury has taken regarding wage increases by refusing to fund them, but the steady incline of our debt-to-GDP ratio is a risk to our investment rating.
- Hoping to shine a little light, President Ramaphosa’s investment summit started this week.
- National Electricity Regulator of South Africa (NERSA) released two electricity tariff applications by Eskom for public comment. The one was an application for the next three-year cycle of tariff increases and the second was a regulatory clearing account (RCA) application for the financial year of 2017/2018. Eskom’s revenue requirement is close to R100bn over the next three years, which translates into a request for a tariff hike of 15% per annum for each of the next three years. The RCA application is for R21.6bn, which equates to approximately 12.5% of Eskom’s allowable revenue in the current financial year of 2018/2019.
- Dan Matjila, CEO of the Public Investment Corporation (PIC) has written an open letter to South Africans in which he addresses many serious allegations that have been laid against him. Follow this link for the letter.
- SA CPI data indicated that headline inflation remained flat at 4.9% year-on-year to the end of September, slightly ahead of expectations.
- September PPI was met with indifference given that the figure of 6.2% year-on-year was in line with the consensus expectation.
