The Week Ahead

  • Global growth continues to slow

    Two global organisations-the International Monetary Fund (IMF) and the World Trade Organisation (WTO)-released gloomy forecasts for global economic growth last week.  The WTO’s latest global trade statistics and outlook painted a really downbeat picture of global growth this year. It published a massive downward revision of GDP growth, reducing its 2019 forecast to 2.6% from its previous estimate of 3.7%. Reasons for the overt pessimism included increasing trade tensions, reducing fiscal and monetary stimulus in the US and Europe as well as structural changes to the Chinese economy.

    The IMF cut its outlook for global growth to the lowest since the financial crisis amid a weaker outlook in most major advanced economies and signs that higher tariffs are beginning to impact on global trade. It cut its forecast for global growth to 3.3% from its Jan 2019 forecast of 3.5%. This would be the weakest growth rate since 2009, when the global economy shrank. This is the third time the IMF global economic forecast has been downgraded in six months.

    The S&P 500 closed at 2907 on Fri 12 Apr, less than 1% below its all-time high of 2 930 established on Sep 20 2018. One reason for the optimism on US markets last week was the better than expected first quarter earnings performance from JP Morgan (JPM). This was seen as a bellwether for US earnings growth and it certainly didn’t disappoint.

    As widely anticipated, the European Union (EU) granted a conditional extension to the Brexit process of six months, until 31 Oct 2019. If an agreement can be passed through the British parliament before Oct 31, then the UK will leave the EU earlier, but at this stage there are precious few signs that this will occur. Negotiations between the Conservative government and main opposition Labour Party are hardly progressing at all, with Prime Minister Theresa May appearing unwilling to budge on her so-called “red lines” in her withdrawal agreement.

    In many ways, a six-month extension is the worst of all worlds and the likelihood of heightened volatility in the UK and EU remains. Current political leadership in the UK offers little prospect of a breakthrough anytime soon, leaving it to parliament to continue leading the process. During the next six months, UK companies will continue to stockpile essential goods, which is not a particularly productive use of capital and this in turn is likely to depress growth in the UK even further. European growth, likewise, may suffer. This view was echoed last week when IMF Managing Director Christine Lagarde warned that a further Brexit delay could hurt the UK economy in terms of heightened uncertainty.

    The JSE Alsi closed 1.1% higher at 58 405 on Fri 12 Apr, continuing its slow upwards progress. It is still 5.2% below its all-time high of 61 685 achieved on 25 Jan 2018.

    EOH shocked the market with its revelation last week that it will post a headline loss per share of R9.93 for the six months to 31 Jan 2019. The EOH share price has lost 94% of its value in the past four years and hopefully management will be able to give some comfort to the market when the interim results are released on Tue Apr 16.

    Economic related events this week;

    17 Apr                                                            SA CPI Mar, SA Retail Sales Feb

    19 Apr                                                            Good Friday Public Holiday