Comment 29 June 2016
Europe’s Brexit 29/6
The opening skirmishes are behind us. Markets were shocked out of their Brexit complacency, selling risk heavily and buying safe haven, but now coming up for their first breath of air. The political leadership in England imploded, showing up deep divisions which also were felt regionally, Scotland especially. Political parties are now searching for new blood, something that may take a few months being finalised.
Europe showed up its many layered complexity, implacable principles at the top, possibly technocratic flexibility just below that, while deep in democratic bowels there are growing populist forces at work, potentially like in Britain capable of fireworks if not addressed.
Comment 24 June 2016
Adjusting to Brexit shock
by Cees Bruggemans words 750
Brexit may not have come as a surprise to some, but it certainly shocked British markets senseless. Sterling sold off heavily to 1.33:$, possibly on its way to even lower trading levels, blue chip British banks and other companies registered double-digit declines in early Asian trading, and the air was alive with political and economic prognostications, both short and long term.
For SA, the immediate reality is a hit to the Rand, falling overnight from 14.40:$ to 15.25:$, although slightly firming against Sterling at 21:£. Also our SA 10yr bond yields 0.35% higher overnight. Our JSE can also expected to be hit, though some companies far more exposed than others. In contrast, gold jumped for joy, up 5% to $1320, along with the weaker Rand a big boon to our mining sector.
Comment 21 June 2016
by Cees Bruggemans words 930
As we hit peak winter (solstice), with the sun’s arc steepening again from tomorrow, and dam levels still pitifully low, what can be said to be currently top of mind (and perhaps overstated) and what is perhaps understated? And does this matter?
Top of mind globally is Europe flying apart socially, the next US President and global positioning (the ugly American?), the dovish Fed, the extreme bond valuations, China’s delayed debt delevering, commodity cycle stabilisation, Dollar retreat, the extended EM risk breather, lack of global confidence (or heightened anxiety across all role players), global macro policy ever more unbalanced. And locally the economy flirting with recession (or already sunk?), the local election outcome, the confusion in government between traditionalists and modernists, the strongly contested succession (no kidding!!!), confidence draining away, the unchanging government supply-engineering paradigm, the unchanging business intent of globalising, the blame game, too little rain.
Comment 17 June 2016
by Cees Bruggemans words 870
We tend to be short-term fixated (Brexit referendum next week, local elections in six weeks time, political paralysis, preoccupation with suppressed past, stagnant present, joyless future). But there are longer run tendencies that should worry?
Just a grab-bag will do. Global population estimates keep rising, as do estimates of migrant flows. Global confidence has waned as has investment growth, giving rise to secular stagnation thesis. The West is past its best, China’s globalisation is rapidly losing momentum, Europe could be flying apart, Trump could be flying off the handle, the Fed’s longer run interest rate trajectory could be a very flat suppressed affair. And war hasn't gone out of fashion.
Comment 14 June 2016
Comfort zone extended
by Cees Bruggemans words 1100
It is a most welcome coincidence. Just as global rating agencies (and markets) have extended our lease on life as an investment-rated country (if with downside risk warnings), so the greater world is ever more convinced about disinflation lasting for longer. Along with heightened risk anxiety (Brexit, deeper stuff?) it favours safe haven destinations, resulting in record low bond yields, with the US 10yr Treasury back to testing 1.6%, the Bund at zero, and over $10 trill of bonds globally yielding negative returns.
In the process, the external pressure on us is eased yet again as the Rand has made a comeback (instead of sinking to new lows under new onslaughts), thus extending our four month comfort zone of earlier this year.
Comment 9 June 2016
SA interest rate prospect
by Cees Bruggemans words 1200
We face a complex outlook, inflation shortly spiking higher past 7% and then subsiding anew, an economy skimming the zero line (flirting with recession, with important sectors deep into it), a political prospect so far as clear as mud, the very ambivalent US economy and Fed position (despite much expressed market “certainty” about the rate trajectory), and not least the President America will choose in November (and the 2017 implications). And then there is still enigmatic China, her private credit overload and Yuan policy intentions. And a few other loose ends globally.
Enough to keep anybody hopping, which is precisely what SARB appears to be doing. Raising rates in the face of a passing supply shock (drought) with the economy weakened by years of struggle and rapidly weakening further (despite heroic claims of seeing faster growth ahead). And SARB frankly telling the world it isn't finished raising rates. Where is this leading?
Comment 8 June 2016
by Cees Bruggemans words 1300
Amongst the daily onslaught on our senses, it isn't easy to keep perspective, what matters, what matters less, and what is trivial. We tend to become buried in daily preoccupations, such as demands made by work, family and work circles, financial challenges, and the ever growing complexity of the daily news flow.
Filtering out what matters, in an information flow only an infinitesimal of the total information availability, with an infinitesimal ability to interpret everything at true value, makes for a dipstick hit-and-miss affaire. Even when relying on so-called experts in each and every field, they in turn subjected to these very same limitations.
Comment 4 June 2016
What to believe…?
by Cees Bruggemans words 1050
What to believe and what to disregard. That's now the real question.
It concerns the budget/debt promises, sorting the State Owned Enterprises (SOEs), the secret strike ballot, the minimum national wage, electricity, the rating agencies. And one or two more things. In there lurks a deal of some kind, or absolutely nothing of the kind (in which case the braze position).
Comment 1 June 2016
by Cees Bruggemans words 900
My focus remains the SA economy. But with everything connected to everything else, and that in more ways than one, upheaval somewhere in the universe tends to connect with our economy somewhere along the line.
With so much unusual (known as non-usual) stuff hitting us simultaneously about the ears at present, and this projected ever deeper into the decade, the economy becomes ever more a hapless bit of cork in a raging sea. How to keep course?
Comment 31 May 2016
by Cees Bruggemans words 1200
Global outsiders looking in are worried stiff, about China’s excessive debt levels, implied leverage, heavily understated non-performing bank loans, its property and industry overcapacity and need to rationalise, with accompanying job losses, its implied growth slowdown, reduced ability to sustain social transformation (rural/urban conversion) and the ability of politicians and policymakers to stay in control of this huge transformation.
China also has a few concerns of its own, in particular management of its Yuan currency, something that is also holding global outsiders in thrall. What are the aims, how will it be implemented? It is this area that has caused most market mayhem these past 12 months.