Over the week U.S. equity markets were boosted by comments from the Federal Reserve Chairman Jerome Powell that rates are closer to neutral, contrasting his comments in October that rates are far from neutral. The market took this as a sign that the tightening cycle may be coming to an end or at least the Federal Reserve is no longer on autopilot with regards to rate hikes. As a result, bonds rallied, the U.S. 10-year closed the week at a yield of 2.99%, the lowest level in more than 10 weeks. U.S. equity markets had the largest weekly gain for the year, the Dow Jones (+5.16%), S&P 500 (+4.85%) and NASDAQ (+5.64%) all ended the week higher, leaving the indices in positive territory for the year.

On Saturday evening, a highly anticipated dinner between U.S President Trump and Chinese President Xi Jinping took place on the sidelines of the G-20 summit in Buenos Aires. The outcome was a truce between the two nations. The two leaders agreed to halt the imposition of new tariffs for 90 days as the two economies negotiate a lasting agreement. The existing U.S. tariffs on $200 billion will stay in place at a rate of 10.00%, the tariff will not be raised to 25.00% as was planned on the 1st January 2019.

The European Union signed off on the Brexit agreement with the United Kingdom, the deal now faces ratification by the British Parliament on December 11. If lawmakers do not ratify the pact, the process will get even messier. An analysis released by the Bank of England projects that an untidy Brexit could result in an 8.00% contraction of the UK economy.

In other news, George H.W. Bush, the 41st president of the Unites States, has died at the age of 94. During his presidency from 1989 to 1993, Bush, a Republican, oversaw a handful of foreign policy decisions that would come to define his legacy. He died at his Houston home on Friday, November 30.

Market Moves of the Week:

Locally, the All Share index ended the week relatively flat (-0.07%), Resources (-1.90%) ended the week in the red alongside SA Listed Property (-1.77%). Industrials (+0.59%) and Financials (+1.60%) ended the week higher. This week was filled with political news and economic data.

The South African rand hit a near 4-month high as emerging market currencies reacted to the comments of the Federal Reserve Chairman Jerome Powell. The remarks were seen as dovish and indicated that risk may be back on for emerging markets. The rand closed the week trading at 13.86 relative to the greenback.

In economic news, South African business confidence fell for the third straight quarter. The RMB business confidence index compiled by the Bureau for Economic Research fell to 31 points in the fourth quarter, down from 34 points in the third quarter and below the 50-mark that separates the net positive and negative readings.

President Cyril Ramaphosa has signed the national minimum wage bill, in an act to tackle the wage inequality in Africa’s most industrialised economy. The National Minimum Wage Act sets the minimum wage at 20.00 rand an hour, equal to 3500.00 rand per month. Many critics fear the act could increase unemployment as many employers will not be able to afford the increase.

In other news, Eskom implemented controlled power cuts for the second day in a row on Friday. This was a result of unplanned outages of some generating units putting the power system under strain.

Chart of the Week:

This chart displays the time period between the two remarks from Federal Reserve Chairman Jerome Powell. On October 3 he described the Fed being “far from neutral” with regards to the rate hiking cycle. This week his comments are that the Fed is nearing neutral. The yield on the 10-year has come all the way back to October levels.

As always, we welcome any feedback on our Weekly Review.

Have a great week!

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