JOHANNESBURG – Although some hope emerged from President Cyril Ramaphosa’s Investment Summit two weeks ago, as well as the news that Transnet’s profits had increased by 5percent, or R17.5billion, over the past six months, the economy is vulnerable and under pressure.
Manufacturing production decreased by 2.4percent year-on-year in September. This was not only lower than the revised number of -1.5percent in August, but was also far off market expectations of a 0.6percent decrease. This weaker performance highlighted the slow-down in economic activity, as it was the fourth consecutive month of negative industrial activity.
Although mining production improved by 0.2percent in September, seasonal adjusted activity in the mining sector had decreased by 1.6percent in the third quarter of 2019 compared with the second quarter of 2019.
Retail sales in September were also disappointing, with an increase of only 0.2percent (year-on-year), much lower than market expectations of a 1.9 percent gain.
These numbers indicate towards a sluggish growth number for gross domestic product (GDP) during the third quarter and confirms the Minister of Finance’s analysis that the economy will grow at about 0.5percent in 2019.
The above negative economic indicators, as well as global geo-political uncertainties such as the lack of consensus over the trade negotiations between the US and China and the violent demonstrations in Hong Kong, put South African financial markets – equities, bonds – and the exchange rate under pressure, which led to volatile movements. Pro emerging-market sentiment, however, recovered on Friday and the rand exchange rate and bond rates moved stronger.
The rand exchange rate had a roller coaster movement last week and traded against the US dollar between the levels of R14.80/$ and R15.05/$ for most of the week. The currency, however, ended the week stronger at R14.70/$, lower than R19.00 at R18.99 against pound sterling and dipped under the R16.30 level on R16.25 against the euro.
On the JSE the FTSE/JSE All Share Index moved nervously and uncertainly during the week. The index ended Friday on 56055, or 562 points (1percent), down since the previous Friday. Financials were down by 0.6percent for the week, the Industrial 25 index lost 1.4percent and Resources moved downwards by almost 1percent.
On the capital market, bond rates are also improving steadily, with the Government R186 bond gaining 1.5percent over the past two weeks, trading at 8.39percent at the close on Friday.
This week, all eyes will be on the Reserve Bank’s Monetary Policy Committee’s meeting starting tomorrow, with the repo rate decision announcement on Thursday. The release of the inflation rate for October on Wednesday will be crucial for the decision. It is expected that the Consumer Price Index increased by 4.1percent last month, the same rate as during September.
Globally, the US will release the minutes of the Federal Reserve Open Market Commission’s meeting last month, when the Fed cut the US bank rate by 25 basis points.
Other countries will release their latest retail sales data and inflation rates. Germany will release its GDP growth rate for the third quarter on Friday. Developed market countries will publish their Purchasing Managers Indices.
Dr Chris Harmse is economist and chief investment officer at Rebalance Fund Managers.