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In the markets: What to watch this week

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Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers.
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers.
Like Brexit, the outcome of last week’s US election again surprised markets, with uncertainty about president-elect Donald Trump’s policy plans weighing on markets.

After an initial global equity sell-off, as a Trump victory became clear, and ensuing historical rally, we look ahead to what impact this will have on South Africa.

Trump has attacked many of the trade deals between the US and its trading counterparts, so a logical question to ask would be: What about our future market access?

South Africa currently benefits from the Africa Growth and Opportunity Act (Agoa), which gives the country unilateral free market access for thousands of product lines without the need to reciprocate free access for US goods in SA. The downside is that the US can unilaterally revoke Agoa benefits as it deems fit.

The US is one of SA’s largest trading partners and should Agoa be scrapped, it could have severe consequences on the local economy.

The rand weakened 4.66% on Thursday as such realisations came to the attention of investors. But it was not only the rand – emerging markets across the globe took a knock. 

The currency that took the worst beating was the Mexican peso, which came under pressure as Trump has promised a clampdown on immigration from Mexico, as well as the scrapping of the North American Free Trade Area, of which Mexico is a member (and major beneficiary). The peso lost 8.65% of its value in one day.

Mexico’s richest man, Carlos Slim, lost an estimated 10.5% of his wealth, with $5.8bn of his fortune being wiped out.

Federal Reserve chair Janet Yellen is due to testify about the economic outlook before the Joint Economic Committee in Washington DC on Thursday and the market is sure to keep a close ear on forward guidance.

US bond markets saw a dramatic move since Trump’s victory, with 10-year US Treasury yields hitting their highest levels in 10 months.
 
The money-market futures are pricing in about 75% chance of a rate hike, up from just above 70%.

Other important economic announcements this week:

Monday

• Japan Preliminary GDP 
• China Industrial Production
• European Central Bank (ECB) President Mario Draghi to speak

Tuesday

• SA Unemployment 
• German Preliminary GDP
• Great Britian CPI and Inflation Report Hearings
• US Retail Sales

Wednesday

• SA Retail Sales
• Great Britain Employment
• US PPI Crude Oil Inventories

Thursday

• Great Britain Retail Sales
• US Inflation and Unemployment Claims

Friday

• ECB President Draghi Speaks
• Federal Open Market Committee (FOMC) member Esther George speaks

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

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