The week ahead

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The week ahead

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Published Date: 2018-01-09 | Source: INCE|Community | Author: Chris Gilmour

The week ahead

Global equity markets, as anticipated, began the year on a positive note. This is sometimes referred to as "The January Effect", as the start of the year often reflects optimism. 2018 is likely to be no exception, as President Trump's tax reforms begin to kick in and in the process give a boost to US corporate earnings. And even though interest rates in many countries are likely to continue rising during 2018, the trajectory of such rises is likely to remain fairly shallow. Inflation is likely to remain under control, especially as technology keeps prices down. Growth in the Eurozone is improving noticeably. With positive factors like these, what could possibly go wrong?

Well, China for one thing. That country's debt-fuelled growth has propelled it into second place behind the US as far as total GDP is concerned. And although 2017's growth is likely to average around 6.7%-well above consensus forecasts even a year or two ago-it is still well off the rarefied highs of 10% to 11% at the end of last decade. Beijing knows full well that it needs to attack its debt demon in a rising interest rate environment and that is no easy task, given the extent of hidden debt in China, in the shadow banking arena for example. The other challenge that the Chinese authorities face is the so-called "Lewis Turning Point"-the point at which the movement of people from rural to urban areas dries up and economic growth contracts significantly. First highlighted in an IMF working paper in 2013, the Lewis Turning Point may well become a reality by the early 2020s and there are regional signs of it occurring already.

Thus while the Chinese economic miracle which has been in place for almost 40 years is still intact, it is showing definite signs of maturing and this may well begin having an impact on global economic growth in the not-too-distant future.

But for the immediate future, things appear to be relatively positive and markets are likely to reflect that.

Politically, watch out for the fallout from the explosive Michael Wolff book on Donald Trump "Fire & Fury". Wolff effectively declares Trump to be unfit to hold the office of the president and heads have already started rolling in the White House regarding who may or may not have spoken to Wolff during the compilation of the book.

In the UK, PM Theresa May is likely to announce a cabinet reshuffle this week though she is unlikely to tamper with the positions of the so-called "big beasts" such as the Chancellor of the Exchequer or the Foreign Secretary. On the Andrew Marr show on BBC on Sunday 7 Jan, May was extremely evasive when tackled on major issues dogging her administration, a sure sign that she is not coping well with the situation.

Locally, Cyril Ramaphosa will give his maiden speech as ANC President at the Absa Stadium in East London on Jan 8 and observers are waiting to see if the speech will contain any meaningful pointers regarding the economy. There are persistent rumours that President Jacob Zuma will be recalled by the new ANC administration but these have been strenuously denied by the party.

The rand remains very strong, though that strength will likely erode the longer Jacob Zuma remains in office as President or if Cyril Ramaphosa is perceived not to be a powerful leader of the ANC.

Local data releases this week;

Thu 11 Jan - SA Manufacturing Production November

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