Good day

Herewith the latest edition of the Monthly Insights. We trust that this will contribute to a broad overview of the interest rate, currency and financial markets. Please feel free to address any questions or comment on the contents to the undersigned.

Executive Summary

  • Recent domestic economic conditions remain patchy and subdued. The key risks remain political in the medium-term. We forecast GDP growth of about 1.1% for 2017, 1.5% for 2018 and 2.1% for 2019. We see local rates as having peaked, with the next move likely lower. The rand is close to fair value and may enjoy a technical foray lower in the short-term. However, we see the market’s pricing of SA’s idiosyncratic risk as being too tight in our opinion.
  • Economic activity in most advanced countries remained relatively firm in the final quarter of 2016. There is much optimism currently priced into markets and the risk of disappointment remains high in our view. If the new US administration continues with its current antagonistic and protectionist approach towards the rest of the world, we think that it will undermine global confidence, fuel conflict, hurt global trade and dampen global growth. Other event risks include the rise of anti-EU parties in upcoming European elections as well as any setbacks in Brexit negotiations.
  • The Fed’s own estimation of hikes is characteristically hawkish, but too elevated in our view. We currently see one Fed hike by 3Q17 and a continued asynchronous monetary policy between the Fed and the ECB. We maintain a bullish long-term dollar view. We see greater yuan internationalisation as a long-term trend.
  • While metal prices and the Dow indices have rallied in anticipation of US fiscal stimulus, the oil price remains upbeat due to intervention by OPEC in cutting production. We anticipate metal prices to consolidate in the near-term, while Brent is expected to remain in an elevated range over the near- and medium-term.