Economic and market snapshot for September 2018
In Momentum Investments’ view, an acceleration in structural reforms is imperative to resolve the country’s stark inequality problem.
In Momentum Investments’ view, an acceleration in structural reforms is imperative to resolve the country’s stark inequality problem.
The SARB MPC left interest rates unchanged at 6.5% at the September 2018 interest rate-setting meeting, but noted three out of the seven MPC members had made arguments for an interest rate increase in of 25 basis points.
In Momentum Investment’s view, lower services inflation, muted currency pass-through and subdued food inflation contributed to the trend in downward surprises in recent months.
SA equities out performed global markets in August 2018, with a weaker rand boosting returns. The FTSE/JSE All Share Index added 2.5.% in the month, supported by industrial and resource shares, while financial shares detracted from gains in overall market.
Better access to social services played a role in driving inward migration into Gauteng and the Western Cape.
Despite an upward revision to the SARB’s inflation projections, sustained currency weakness, international oil prices and higher-than-expected electricity tariffs continue to pose an upside threat to its forecast.
Consumer price inflation (CPI) came in lower than consensus expectations by 0.2% in June 2018. While the Bloomberg median estimate was expecting a steeper rise in inflation from 4.4% year-on-year (y/y) in May 2018 to 4.8% y/y inJune 2018, Statistics South Africa (Stats SA) reported headline inflation at a lower 4.6% y/y.
Momentum Investments expects global equities to still outperform global government bonds as long as the global expansion continues. Meanwhile, government bond market fundamentals remain negative (with rising inflation and some fiscal deterioration), while the wide bond valuation premium with equities still persists.
Growth is expected to pick up in the remainder of year. Momentum Investments expects growth in real economic activity to recover from 1.3% in 2017 to 1.7% in 2018, 2.1% in 2019 and 2.4% in 2020.
Food prices are not exerting upward pressure on the inflation basket, but the rand price of oil poses a greater threat. Relative to a year ago, food prices are only 1.6% higher in rand terms, whereas oil prices pose a far larger threat, up 59.1% relative to a year ago.