The Week Ahead of 12 August with Chris Gilmour

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The Week Ahead of 12 August with Chris Gilmour

Published Date: 2019-08-12 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead of 12 August with Chris Gilmour

Shockwaves ran through emerging markets last week as China allowed its currency, the yuan, to depreciate in retaliation for the impact of trade tensions with the United States. In return, the US administration labelled China as a currency manipulator. As the largest emerging market in the world, this had a significant knock-on effect in other emerging markets, with all EM currencies, including the ZAR, depreciating in tandem with the yuan. A number of emerging economies responded by cutting interest rates and even Australia (though not an emerging economy), surprised the currency markets last week with its suggestion that another interest rate cut could be in the offing later this year, following on the two successive rate cuts in Jun and July. The US Federal Reserve will come under increasing pressure to cut interest rates in the US if continuing trade tensions result in a slowing of the US economy. The S&P 500 closed down 0.4% for the week at 2 919.

The UK economy shrank by 0.2% in the second quarter of 2019, against the estimates of many economists. Stockpiling in the first quarter ahead of an expected exit from the European Union (EU) is one of the main reasons for the relative decline, compared with the first quarter. However a growing body of economists now expects the UK to enter a technical recession in the third quarter as Brexit uncertainty remains elevated during this time. Sterling hit a two-year low against the US$ and the Euro as news of the poor second quarter figures trickled out. German economic data continues to suggest that the German economy is already in recession. Globally, things remain bleak, with growth just about everywhere declining. This is reflected in the oil price, now hovering around $56/bbl.

As a small, open economy, South Africa is especially vulnerable to trade tensions. The country is now in an especially difficult phase, as trade tensions between China (SA's largest single trading partner) and the US intensify. The problem is exacerbated due to the country's high reliance on commodity exports at a time when commodity prices are once again taking strain. To give some colour to this, the iron ore price slid sharply following the news of China's devaluation and is now trading at around $93/tonne, down from over $120/tonne only a few weeks ago. The outlook for the South African economy continues to deteriorate, with the likelihood of a ratings downgrade from Moody's in November looking ever more likely. Although highly unlikely at this point in time, an increasing number of commentators are openly discussing the possibility of SA having to go to the International Monetary fund for a bailout.

The JSE All Share Index continued its dismal decline last week, closing 1.3% down on the week at 55 535.

JSE listed company results out this week;

  • 13 August 2019
    • Absa interim
    • 15 August 2019
      • City Lodge Final, Gold Fields Interim
      • 16 August 2019
        • Truworths - Final

        Economic data releases this week;



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