The Week Ahead


The Week Ahead

Published Date: 2018-03-27 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead

The US Fed's FOMC met for the first time last week under the chairmanship of Jay Powell. As expected, rates were increased by 25bp and the likelihood is that there will be another two or even three more hikes of the same magnitude this year. Powell also mentioned that there are likely to be three rate hikes in 2019. This was the sixth rate hike since the global financial crisis of 2008 and by 2019, the US will be well on its way to a more "normal" interest rate regime.

Powell is a refreshing departure from the intellectual, though somewhat tedious chairmanships of Janet Yellen, Ben Bernanke and Alan Greenspan. Unlike his immediate predecessors, Powell is not an economist and it shows in his narrative. He didn't resort to economic theory in his presentation last Wednesday-again, a notable departure from the like of Yellen, Bernanke and Greenspan.

The fierce trade war rhetoric continued last week, with the Trump administration slapping even more tariffs onto China. Trump announced a 25% tariff on up to $60bn worth of Chinese imports with high intellectual property content. Inevitably, China retaliated, with a 15% tariff on $3bn worth of a variety of US goods.

Previous weekly update: The Week Ahead

Trump is a hard-nosed businessman, rather than a politician and these actions are probably designed to be a type of opening bargaining gambit; something that can easily be jettisoned if other, more serious matters between the US and China get resolved along the way. As things currently stand, the proposed tariffs are tiny in comparison to the damaging Smoot-Hawley tariffs of the 1930s that may have prolonged the Great Depression and from that perspective are perhaps not too concerning. But markets will obviously be watching any further developments in this regard with great interest.

Back home, the retail sales figures for Jan 2018 came out and were much lower than expected, with growth in so-called "Other Retailers" falling back sharply. Clothing and appliance sales remained strong.

The big event from a South African perspective was the Moody's decision on SA's sovereign debt rating, which came out around midnight on Fri 23 Mar. As expected, Moody's didn't downgrade SA's local currency debt to junk but an added surprise on the upside was that they changed their outlook from negative to stable. Although already discounted to an extent, expect the rand to go stronger on Mon 26 Mar.

Following the sustained torrential rains over large parts of SA last week, the Vaaldam began filling up rapidly, at a rate of 1.5% every eight hours. At this rate, the dam should be 100% full by the evening of Mon 26 Mar.

The SARB/MPC meeting takes place next week and a decision on interest rates will be made on Wed 28 Mar. The market is expecting a 25bp cut but there are a few outliers who see a 50bp cut next week. Whatever the result, it will give a much-needed boost to the consumer, who will be hit with a one percentage point increase in VAT from 1 Apr.

Data Releases this week;

  • Tue 27 Mar
    • SA Nonfarm payrolls Q4
  • Wed 28 Mar
    • SARB MPC Decision
  • Thu 29 Mar
    • SA M3, PSCE for Feb
    • SA Trade Balance Feb
    • SAA PPI Feb

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