The much-anticipated meeting between the U.S. and China at the G-20 Summit has ended favourably, with President Trump stating that he had an excellent meeting with Chinese President Xi Jinping, and that negotiations with China are continuing. "We are right back on track” with China, he added. China's official Xinhua news agency reported that the U.S. will not levy new tariffs on Chinese exports. The two countries have agreed to restart trade talks.
Fed Chairman, Jerome Powell, backtracked on his dovish comments made last week, pushing back on market expectations and presidential pressure for the central bank to deliver a significant U.S. interest rate cut of half a percent as soon as its next meeting. Powell stated that the central bank is still monitoring the economy for signs of weakness and would seek to avoid a knee-jerk reaction in terms of cutting benchmark interest rates.
U.S. consumer confidence decreased to 121.5 in June, compared to market expectations of a decrease to 131.0. Final annualised GDP recorded a rise of 3.1% for 1Q19 compared to expectations for an increase of 3.2%.
The Bank of Japan’s latest monetary policy meeting minutes revealed that policymakers debated the feasibility of ramping up stimulus. Further, one board member stated that the central bank must show its readiness to act if the economy’s recovery is derailed.
In the U.K., the final stages of the Conservative leadership election are under way with Boris Johnson facing off against Jeremy Hunt, to replace Theresa May as Conservative leader - and Prime Minister. The two are due to compete in a series of hustings across the country, after which Conservative party members will pick which of them will go on to be the next Prime Minister of the U.K. Johnson remains the frontrunner in the contest and easily made it to the final two, securing the votes of more than 100 Tory MPs in each round.
Both men have said they would try to renegotiate a deal with the EU. But Johnson says the U.K. must leave the EU on 31 October, "do or die", with or without a deal. Hunt says he would leave without a deal in October if there was no prospect of leaving with one - but has not ruled out a further delay and has called 31 October a "fake deadline".
According to China’s Beige Book, China’s economy saw a modest improvement in the second quarter, but the risks ahead look more serious. The manufacturing and retail sectors outperformed, with policy support allowing manufacturers to borrow cheaply and the retail sector seeing strong profits and sales volumes.
Global equity market performances for the week were muted. In the U.S., the Dow Jones (-0.45%), S&P 500 (-0.30%) and Nasdaq (-0.32%) indices were all slightly weaker. In Europe, the Euro Stoxx 50 (+0.20%) and FTSE 100 (+0.24%) indices edged higher, whilst Asian markets were mixed with Nikkei 225 gaining +0.15% and the Shanghai Composite Index (-0.77%) ending the week softer.
Market Moves of the Week
Locally, the Reserve Bank’s Quarterly Bulletin revealed that South Africa’s economy remains stuck in its longest downward cycle since 1945. The economy entered the 67th month of a weakening cycle in June.
The South African Reserve Bank said monetary policy remains broadly accommodative, even as the economy will expand by just 1% this year. While the economic growth outlook is subdued, this is mostly due to structural constraints and the solutions which “largely fall outside the scope of monetary policy,” the central bank said in its annual report for the year through March.
In a meeting held in London this week, Treasury Director-General Dondo Mogajane, told investors that Eskom creditors won’t lose out in a revamp, stating that timelines have been laid out for the restructuring of Eskom Holdings SOC Ltd. and pledged that creditors of the state-owned power company won’t suffer losses, this according to a fund manager who attended a briefing asking not to be identified because the event wasn’t public.
The JSE All Share Index ended the week down -1.25%. The resource sector (+0.62%) was stronger against weaker performances from industrials (-1.64%) and financials (-2.98%). The rand was strong, appreciating against developed market currencies.
Chart of the Week
The recent bond rally has led to 23.6% of global debt issuance trading at negative yields. This is just below the 25% level that we saw in 2016 when the U.S. 10-year yield hit lows of 1.36%. As the chart shows, the bulk of the increase in such debt is from Japan, and more recently, the Euro area. Nearly 70% of yen-denominated and 40% of euro-denominated debt trades at a sub-zero yield. As the ECB presses through with its easing options, the fraction of negative yielding debt in Europe is likely to grow.
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