Locally, numerous factors are weighing on the rand, ranging from slowing global growth, the threat of trade wars, a standoff between Europe and the UK and more recently the highlighted financial woes at state-run power utility Eskom. The rand ended the week at R14.39 per dollar (1.6% weaker over the week), in line with other emerging market currencies.
The Johannesburg all-share index ended the week 1.02% stronger on the back of stronger resource sector. In fixed income, the yield on the benchmark 2026 paper jumped 6.5 basis points to 9.20%.
In company news one of South Africa’s largest retail groups, Edcon, is on the brink of collapse putting up to 140,000 jobs at risk. Edcon is said to have asked landlords for a rent holiday in exchange for a share in the business, stating that unless this offer was accepted the company would likely be liquidated.
Market Moves of the Week:
US stocks finished lower for the week, with continued fears of slowing global economic growth being one of the main focal points over the week. There were some positive signs of a further de-escalation of US-China trade tensions with China resuming US soybean purchases and a reduction in auto tariffs for imported US cars.
Whilst recent US data reaffirms a strong local economy (strong retail sales, improving consumer confidence and low unemployment) concerns around the world’s second-largest economy showing signs of slowing down has investors worried. On Friday, Chinese officials reported weak growth in monthly retail sales (see chart of the week) and industrial production. The Chinese economy looks strong growing at 6.5% in the three months ended in September, compared with a year earlier but beneath the surface there has been a significant slowdown in construction, foreign investment and a sharp fall in auto sales.
In the UK British prime minister Theresa May survived a no confidence vote after postponing a parliamentary vote on the adoption of the United Kingdom-European Union separation agreement. May then attended an EU summit but received no fresh assurances from the EU. If the current agreement can’t be passed in parliament the UK is heading for a hard Brexit, other possibilities include a second referendum or an extension of the 29 March 2019 Brexit date if agreed upon by the UK and EU. It is unlikely that the UK or the EU would like to see a hard Brexit.
During the week the European Central Bank confirmed its asset purchase program will come to an end this year, signalling its first rate hike is likely to be in the second half of 2019.
The Federal Reserve meets this week on Wednesday and Thursday with a 25 basis point hike expected in the federal funds rate. Economists have tempered their expectations for the path of interest rates for 2019, calling for two rate increases next year rather than the earlier forecasted three.
Chart of the Week:
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