Weekly Market Commentary – 13 December 2019

Brexit Clarity Following Conservative Win
This week, after years of uncertainty following the Brexit referendum, the country finally took a decisive step. In what direction remains to be seen. With a solid majority Boris Johnson has many more options in front of him; not beholden to any particular wing of the party, personal ideology or even much of a manifesto. Whether Johnson carries on in the style in which he’s begun or tacks to the centre is now the big question and might ultimately depend on who ends up sitting opposite him.

One thing we have some short-term clarity on is Brexit. The UK will leave the EU at the end of January and nothing much will change now until 2021. The shape of the UK’s relationship with the EU after that is yet to be determined, and like the rest of the Johnson premiership, all options are still on the table.

US: Federal Reserve Hold Rates Steady
The Federal Reserve (Fed) announced interest rates will be held steady following their latest committee meeting this week. The Fed also expects no further rate cuts from now to the end of 2020. Following numerous cuts in 2019, the Fed’s tone has changed from one of uncertainty to positivity for the US economy. With a strong economy, tight labour market and low inflation, the Fed can afford to keep interest rates unchanged.

However, they will continue to monitor the wider global economy and cut interest rates if needed. There were no objections from any of the committee members against holding rates steady in the last two FMOC meetings.  Following days of underperformance due to trade war fears, the US stock markets rebounded with both the Dow Jones and the S&P 500 ticking up marginally following the announcement, while bond yields fell slightly.

South Africa: Rolling Blackouts Heighten Recession Fears
In February we observed floundering state-owned utility firm Eskom receive a hefty bailout package by the South African government, and in turn causing the balance sheet to balloon. Now the company is back in the headlines for steering the nation toward a technical recession. Eskom has been curbing power via rotational load shedding; heavy rains have soaked the coal which is used as fuel. Load shedding involves intentionally shutting down power in different areas within South Africa for non-overlapping periods of time. Earlier this week Eskom initiated a “stage 6” load-shedding effectively cutting 6,000 megawatts from the national grid.

By curbing power over consecutive days, the rolling blackouts have impacted factories and mining activity and ground traffic to a halt. However, the impact to GDP growth this quarter may not be as sharp as the last. Many businesses have begun winding down ahead of the Christmas holiday period.

UK: Economic Growth Flatlines
Steep falls in the manufacturing and construction industries have contributed to Britain’s economy stalling. In the three months to October, year-on-year growth in GDP was 0.7 per cent – the slowest growth rate since 2012. Manufacturing output continued its decline falling for the seventh consecutive month as factories battled against sluggish global economy and Brexit uncertainty.

The services sector was the only bright spark. In particular, estate agencies, healthcare and the scientific sector where the main drivers of modest growth. Looking at latest the soft data for November, key confidence indicators have dropped below 50, indicating an economy heading towards recession.

Recommended Posts

No comment yet, add your voice below!

Add a Comment

Your email address will not be published. Required fields are marked *