IMF revises global and domestic growth lower

• After five days of gains on Wall Street, the S&P ended the run by closing in the red. The S&P lost 0.4%, but the Dow Jones made a slight gain of 0.1%.

• The Asian markets have not followed Wall Street down, instead finding positivity following the decision by the Bank of Japan this morning regarding rates. The BoJ has not ramped up its stimulus program, stating that “Japan’s economy has continued to recover moderately”.

• The IMF said yesterday that the world economy would grow at its slowest pace this year since the financial crisis. The IMF revised the global growth forecast for 2015 from 3.3% (July estimate) to 3.1% (October estimate). China’s GDP growth forecast remained unchanged at 6.8% in 2015, but is expected to moderate to 6.3% for most of the rest of the decade.

• Brent crude gained 5.4% yesterday, breaking through $50/bbl. This is likely as a result of warnings that US oil production is set to slow.

• Strikes in SA’s coal sector commenced on Monday following months of negotiations over workers’ wages. As the strike goes into its third day, no talks with companies have yet been planned to resolve differences between unions and companies.

• The strike comes at a time when GDP growth this year is likely to disappoint on the back of electricity supply constraints and weak domestic demand. Finance Minister Nhlanhla Nene noted last week at the risks to the GDP outlook were to the downside and that growth was likely to print below the 2% estimate tabled in the February Budget.

• The IMF revised its GDP forecasts lower this week, from 2% to 1.4% for 2015. The 2016 GDP growth forecasts were also cut, to 1.3% for 2015, from a previous estimate (in July) of 2.1%.

International developments

After five days of gains on Wall Street, yesterday saw the S&P close in the red. The S&P lost 0.4%, but the Dow Jones made a slight gain of 0.1%.

The Asian markets have not followed Wall Street down, instead finding positivity following the decision by the Bank of Japan this morning regarding rates. The BoJ has not ramped up its stimulus program, stating that “Japan’s economy has continued to recover moderately”. It will continue to buy bonds and other assets, but the inflation target of 2% looks far off at present. On the back of this statement, the Japanese Nikkei was up 0.7% at the time of writing, and the Hong Kong Hang Seng was up 1.3%.

The IMF said yesterday that the world economy would grow at its slowest pace this year since the financial crisis. They have revised their global growth forecast for 2015 from 3.3% (July estimate) to 3.1% (October estimate). China’s GDP growth forecast remained unchanged at 6.8% in 2015, but is expected to moderate to 6.3% for most of the rest of the decade. US growth for 2015 was revised to 2.6% from a previous estimate of 2.5%, and increasing to 2.8% in 2016. These revisions come on the back of the possibility of a rise in rates later this year. The IMF recommends that monetary policy remains loose.

Brent crude gained 5.4% yesterday, breaking through $50/bbl — likely as a result of warnings that US oil production is set to slow.

US consumer credit for August is due for release today. Reuters consensus is for a print of USD19 billion, slightly less than the July reading of USD19.1 billion.

Local developments

Strikes in SA’s coal sector commenced on Monday following months of negotiations over workers’ wages. NUM was demanding a 15% increase in wages for its workers, while producers have increased their offer to 8.5%, up from 8.0%. However, as the strike goes into its third day, no talks with companies have yet been planned. With 30,000 workers having downed tools, the strike may affect Eskom’s ability to produce amid the current electricity supply constraints. Eskom has, however, indicated that the strike was unlikely to impact power generation at this stage and that supply would only be adversely impacted should the strike last longer than month. The unions have noted that the strike is likely to be prolonged should differences with the Chamber of Mines not be resolved.

The strike comes at a time when GDP growth this year is likely to disappoint on the back of electricity supply constraints and weak domestic demand. Finance Minister Nhlanhla Nene noted last week that the risks to the GDP growth outlook was to the downside and that growth was likely to print below the 2% estimate tabled in the February Budget. We also anticipate GDP growth to come in below 2% in both 2015 and 2016. Minister Nene delivers his Medium Term Budget Policy Statement on 21 October 2015.

The IMF revised its GDP forecasts lower this week, to from 2% 1.4% for 2015. The 2016 GDP growth forecasts were also cut, to 1.3% in 2015, from a previous (July) estimate of 2.1%. The IMF’s revisions come on the back of the ongoing impact of falling commodity prices, a volatile and weak rand and poor business and consumer confidence.

Markets

The rand strengthened further on Tuesday, closing at 13.52, compared to Monday’s close of 13.62. The rand’s appreciation against the greenback occurred in line with dollar weakness against all of the major currencies; the dollar posted losses against the euro (0.8%), the pound (0.5%) and the yen (-0.2%). The rand’s performance was mixed against the major crosses; the rand gained ground against the yen (0.5%) and the pound (-0.1%), but lost ground against the euro (0.1%). The rand put in the second-worst performance amongst the commodity currencies we monitor, only ahead of the CAD and put in the third-worst performance amongst EM currencies, only ahead of the THB and INR. The rand traded between a low of USDZAR13.5130 and a high of USDZAR13.7174.

Commodity prices were up on Tuesday. Platinum and gold were up by 2.4% and 1.0% respectively, while copper was up by 0.2% on the day. Brent closed the day 5.4% higher, at $51.925/bbl. Both the developed world MSCI and the MSCI EM were up on the day, by 0.2% and 0.9% respectively. The ALSI was down on the day, albeit fractionally. The EMBI spread narrowed on Tuesday by 3 bps, and SA’s 5yr CDS narrowed by 4 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 0.7%.

Latest SA publications

SA Macroeconomics: USD40Bn of EM outflows in Q3: We update our ZAR & repo rate forecasts & expect SA manufacturing to slow in Aug by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (6 October 2015)

SA FIC Weekly: Weaker rand, but rates view stands by Walter de Wet, Shireen Darmalingam and Penny Driver (5 October 2015)

SA Credit & Securitisation Monthly: Quarterly update – Q3 2015 by Robyn MacLennan, Steffen Kriel and Varushka Singh (2 October 2015)

SA Macroeconomics: SARB keeps repo rate at 6.0%: Growth outlook deteriorates meaningfully, inflation largely unchanged by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 September 2015)

SA FIC Flash Note: SARB - hawkish statement with lower growth by Walter de Wet (23 September 2015)

SA Macroeconomics: SA CPI slows to 4.6% y/y: Core inflation falls to 5.3% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (23 September 2015)

SA FIC Weekly: SARB – a hawkish pause by Walter de Wet, Shireen Darmalingam and Penny Driver (21 September 2015)

SA Credit & Securitisation Weekly: Transnet’s acting CEO comments by Steffen Kriel (18 September 2015)

SA Macroeconomics: July retail sales grow 3.3% y/y, down from 3.8% y/y in June: General dealers and textiles together contribute 1.9 ppts by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (16 September 2015)

SA Macroeconomics: SA Q2 CAD narrows, retail sales slow in Jul & we await FOMC: PCE & Investment may disappoint by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (14 September 2015)

SA FIC Weekly: Key FOMC meetings matter by Walter de Wet, Shireen Darmalingam and Penny Driver (14 September 2015)