The Week Ahead

  • Just when you thought it was safe to go back in the water…..

    Last weekend, the global growth outlook was looking relatively benign and the S&P 500 was hitting new peaks. Then out of the blue, the Trump administration came out with the prospect of fresh trade tariffs aimed at China and markets took a beating. The US followed through on President Donald Trump’s earlier threat to boost tariffs on $200bn of Chinese imports from 10% to 25%, with Chinese authorities threatening prompt retaliation. Further escalation in the conflict seems possible, with President Trump also having threatened to impose tariffs of 25% on the $325bn of Chinese imports that have as yet been untouched by US tariffs. Coupled with the further possibility that the US will raise tariffs on certain European imports, the chances of a downturn in global trade due to enhanced protectionism appear to be increasing.  

    The oil price held fairly steady last week, even in the face of a number of potentially worrying factors, such as veiled threats by Iran to attack oil tankers in the Persian Gulf and a decline in the number of oil rigs in the US, as reported by the Baker Hughes drilling consultancy.

    The S&P 500 fell in line with the negativity surrounding the US/China trade talks, with the index closing at 2881.4, a decline of 2.2% on the week. The big corporate event of the week was the disappointing debut of ride-hailing app Uber, which opened at $42 per share, almost 7% below its anticipated opening price of $45.

    The SA elections took place on 8 May, with the governing ANC being-re-elected to power with a reduced majority but a still relatively comfortable showing of 57% of the popular vote. The turnout was very low at around 65%. Now the really hard work begins for President Cyril Ramaphosa. Armed with an election victory that surely would not have occurred had his opponent in the ANC leadership contest of Dec 2017-Nkosazana Dhlamini-Zuma-won the ANC presidency, Ramaphosa must now show great courage and strength. He needs to drastically cut the size of his bloated cabinet and demonstrate that the country is adhering to investor-friendly policies. Already, financial markets have warmed to the ANC victory and the ZAR has also strengthened on the news. But if SA is to avoid a ratings downgrade from Moody’s, Ramaphosa needs to demonstrate that he means business. Neither he nor the country as a whole have the luxury of time.

    The JSE Alsi was hit hard by the decline in global markets following the Trump administration’s remarks surrounding trade tariffs on China. The index closed 4.3% down on the week at 56 781, though the tone of the market turned positive on Fri as it digested the outcome of the SA elections. Financials were especially strong on Fri-expect so-called “SA Inc stocks”to perform reasonably well in the coming days and weeks if Cyril Ramaphosa can engineer another wave of “Ramaphoria” that accompanied his ascent to power early last year.

    The much-awaited Steinhoff annual results for the year to Sep 2017 were released last Tue and were far worse than most analysts had anticipated.  


    Economic related events this week;

    14 May                                                           SA Unemployment Q1

    15 May                                                           SA Retail Sales Mar