In the markets: What to watch this week

Futuregrowth and our GDP

Spring day brought about a bit of euphoria, but the market and the rand had a tough week.

Both ended in the red after more drama following Futuregrowth Asset Management’s announcement that it would be halting loans to six state-owned enterprises, and would also not be rolling over any debt for these entities.

The most important data due for release this week is SA’s second quarter GDP growth figures on Tuesday.

This will reveal whether we dipped into a technical recession, which is defined by two successive quarters of negative growth – having released -1.2% GDP in the first quarter this year.

Forecasts indicate that the economy is likely to slip into recession. With inflation having been above the target range for almost the entire year, and a constrained consumer, analysts anticipate that the economy will not reach the S&P’s target growth for the year. CEO’s of major listed companies in SA are expressing concern. 

A negative figure could put South Africa’s credit rating at risk of dropping below investment grade, or junk status as dubbed by investors.

The unexpected decision by one of Old Mutual’s subsidiary, Futuregrowth Asset Management, to suspend loans to six state-owned enterprises has brought to light more concern around political stability as friction continues to heat up between the government and treasury.

Chief investment officer at Futuregrowth, Andrew Canter, explained on international business news TV that further clarity and comfort around the governance and oversight of the state-owned enterprises is needed in order to continue providing funds from its clients.

Futuregrowth Asset Managers is one of Old Mutual’s boutique asset managers and is mandated to make independent investment decisions. Nonetheless, Old Mutual expressed that it would “engage” with Futuregrowth on the matter.

Business confidence figures due dor release on Friday could mark another decline, with these figures having dropped from 51 to 32 since January. A figure above 50 indicates improved confidence, while a figure below 50 indicates worsening confidence.

The ruble and the rand

Overseas investors started highlighting the political risk associated with investments in South Africa by comparing the rand to the Russian ruble. The ruble has shown steady strength against the rand in recent weeks. Russia’s ruble is a useful comparison for the rand as both economies fall under Brics and are reliant on the exportation of resources. Russia on the other hand has not had political risks affecting its currency.

Other important economic events coming up this week:

Monday

  • SA Standard Bank PMI
  • Japan: Bank of Japan governor Haruhiko Kuroda speaks
  • China Caixin Services PMI
  • Euro Area Markit PMI and Retail Sales
  • Great Britain Markit/CIPS Services PMI

Tuesday

  • China GDP growth rate and Swiss National Bank chairman Thomas Jordan speaks
  • Euro Area GDP growth rate
  • US Markit PMI and Non-Manufacturing PMI

Wednesday

  • SA Foreign Exchange Reserves
  • Japan Leading Economic Index
  • German Industrial Production
  • Great Britain Manufacturing, Industrial Production and Inflation Report Hearings
  • US Fed Beige Book

Thursday

  • SA Gold, Mining and Manufacturing Production
  • China Balance of Trade
  • Euro Area ECB Interest Rate Decision and Press Conference
  • US Unemployment Claims and Crude Oil Inventories

Friday

  • China Inflation Rate
  • German Balance of Trade
  • Great Britain Balance of Trade
  • US Wholesale Inventories

 

Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.

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