Short Note 8 December 2016
Afraid of Nothing
American equity markets are clearly not afraid of Trump (bonds are different, rightly so). European equity markets seem not to be afraid of Brexit, Italian chaos and anything that France may offer, with populist right-wingers making head way everywhere (but not enough?), yet Merkel safely ensconced in Germany. And the Rand currency market also doesn't seem to be afraid of the ANC or the daily litany of litigation & public outcry.
That's a mouthful. But markets are bearing out various messages, yet pointing in similar directions. Across the world, don't be afraid. Instead, take a Kitkat.
Short Note 30 November 2016
Providing national guidance
As President Zuma winged north to attend the funeral of Fidel Castro, the RMB/BER business confidence index for the 4Q16 was released (a drop to 38 from 42, meaning nearly two-thirds of business executives expressed a lack of confidence) while the NEC (the national executive committee) announced its interpretation of what had happened during three days of intense deliberations.
There are no known links between these events, but they still raise questions. Only the NEC presumably knows what was discussed and what it means. What matters is the upshot: President Zuma continues in office after the most serious challenge to his regime. Business managers, surveyed a couple of weeks ago, expressed the very opposite view about being confident in what they are doing. And Zuma is presumably happy doing what he likes doing most, overseas travel away from these pesky domestic troubles.
Short Note 24 November 2016
SARB rates unchanged BUT
What surprised least in the unanimous SARB rate decision today: that it kept rates unchanged, and its preoccupation with uncertainties surrounding Trump policies, their global & SA impact, with Brexit a distant second concern.
SARB’s domestic concerns warranted a short sentence, possibly understating what it still really fears but doesn't say. One can imagine, though, and does. Certain things just don't bear contemplation, even if still in back of the head.
Short Note 15 November 2016
Changing SA scene
by Cees Bruggemans words 570
We face a policy switch in the US in 2017, meaning fiscal taking the lead through bigger deficits and monetary becoming defensive through higher rates. Higher bond yields and stronger Dollar anticipate this and otherwise will follow. Also, any trade accords may suffer revision, naturally at our expensive. Thus directly & indirectly we face possibly steep Trump premiums. This implies downside for the Rand, given our sizeable current account deficit near 3% of GDP.
As if any of this isn't enough, there is our domestic angle. The nuclear deal has become ever more ominous following reported August talks between Gwede and Julius. What is coming more clearly into focus is the Zuma staying power and voice in the succession. As a consequence we face short-term risks (rating agencies giving up on us, downrating us, giving further downside risk to the Rand). But on a slightly longer time frame we face much more momentous risks if the Zuma presidency were to throw its weight around, shuffle cabinet and force through the nuclear deal. Would that be sudden death?
Short Note 3 November 2016
Walking tall again
Growth prospects remain our Achilles Heel, far from resolved. The sitting president still has all his executive powers, all his minions serving at his pleasure, and removable at a wink. Our political risk as such is therefore not minor, given the end games now apparently in progress, within the leading party but also in the country at large.
There is a sense of movement, with president Zuma losing stature & unqualified backing. His party appears in disarray, increasingly uncertain what 2019 will bring, with margins of certainty greatly reduced. The Gupthas appear to have relocated, many Zuma loyalists have ended under moving busses, and appetite for self-sacrifice for a potentially criminal & unethical dispensation seems to be reducing.
Short Note 1 November 2016
by Cees Bruggemans words 740
It wasn't intended this way. After two years of rebalancing (faster growth, lower current account deficits, higher interest rates), non-US economies were expected to show greater resilience in the face of Dollar strength. In other words, US and global forces making for Dollar strength would be partly outweighed by these internal changes in non-US economies, preventing too much of a currency adjustment (disruption) for them in 2017.
But it isn't quite playing this way. There is a primordial groundswell underway, focused on faster growth and higher inflation in the US (& Europe?), admittedly all of it in moderation. But it isn't recession & deflation that looms. Worldwide, this change in perception (& reality) has been swinging the balance of bond market opinion in recent months, but especially so in the US. The US 10yr yield is 35 points higher since its July low (only partly reflecting higher US inflation), the German Bund yield is 25 points higher and the Jap JGBs also 25 points higher. And as the yield curve lifts (over the entire range, from short to long yields), so the relative attractiveness changes, favouring the US and giving the $ lift.
Short Note 27 October 2016
The banana rating agency
by Cees Bruggemans words 740
The nuclear power deal looked suspect for a long time, stonewalled supposedly by Treasury as unaffordable, with suggestions by some of full vendor (Russian) funding taking care of everything, including comfortable handshakes between friends. But finance minister Gordhan yesterday confirmed Eskom will lead in the nuclear deal, with all the usual Treasury provisos, apparently suggesting this will float, realpolitik possibly achieving trade-offs elsewhere. Even so, there may remain active resistance in the real world to anything unaffordable.
There is other strategic stuff that goes yet deeper. Regarding bananas & rating agencies, for instance.
Short Note 14 October 2016
Deepening SA contrasts
by Cees Bruggemans words 450
Our politics 2016 is so outlandish that one senses to be visiting another planet. Still, it is for real. But in the process, two contrasts seem to be deepening.
The one is the apparent belief (conviction?) that Zuma will ultimately fail, that he can't keep up this charade, that it is a matter of time to elect new leadership that will end this nightmarish condition we find ourselves in, with the state deeply vulnerable. It will end. After which “normality” will resume.
Short Note 13 October 2016
The Rand Surprise
by Cees Bruggemans words 800
It could be that markets only go one step at a time, cautiously summing up what is confronting them, without immediately wanting to discount what may, or may not, await them in time.
But we do know that markets can panic, depending on new information offered and the assessment it allows. Yet what we have witnessed so far this week is instant outrage from a broad spectrum of middle class SA society but as yet minimal market reaction to the legal moves on Finance Minister Gordhan. Are markets being too easy going? Or is there reason not to overreact?
Short Note 11 October 2016
SA reform talk & commitment
Talk is cheap. It is believable action by credible role players that are real game changers. What's the state of play? All talk or is there the outline of imminent doable stuff?
There are three main key sources of promising talk and required action. The ANC’s NEC, the Gordhan-led Team SA, and businesses (and unions) generally in their many individual capacities.