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Week in Review: ANC loses 30-year majority

The Electoral Commission of South Africa (IEC) announced that the majority of the 27.7 million registered South Africans showed up in their numbers to mark their ballots on Wednesday. It was South Africa’s 7th democratic election, with a voter turnout of close to 59%.

With counting complete, the ruling African National Congress (ANC), lost its majority in parliament for the first time since it came to power 30 years ago. The ANC leads with 40.2% (a significant drop from the 57.5% of votes it secured in the last national election in 2019), followed by the Democratic Alliance (DA) with 21.8%. The uMkhonto weSizwe Party (MK Party) of former President Jacob Zuma has received 14.6% of the vote (with a particularly strong showing in KwaZulu-Natal of 46% of the vote, Zuma’s home province) while the Economic Freedom Fighters party captured 9.5% of the national vote.

According to the Constitution, Parliament must hold its first session within 14 days after election results are released. Thereafter, members of Parliament (MPs) are sworn in, and they elect a president among their 400 members.

South African political parties are now gearing up for complex coalition talks. Former President Zuma’s new MK party has said it won’t partner with the ANC for as long as President Ramaphosa remains its leader, while an ANC coalition with the pro-business Democratic Alliance (the second largest party) being the more favoured investor outcome, also presents challenges for the ruling party, with resistance within the ANC to its reputation as a party for the white minority. Investors will hope the uncertain political picture becomes clearer over the next two weeks.

On Thursday, Governor Lesetja Kganyago delivered the May Monetary Policy Committee statement. The MPC decided to keep the repurchase rate at its current level of 8.25% per year, as expected. The decision was unanimous with the following key observations:

  • Consumer inflation forecasts have been revised modestly lower, mostly due to easing food and core inflation. Kganyago said the bank sees inflation stabilising at the 4.5% objective in the second quarter of 2025, which is earlier than its previous forecast of stabilisation only at the end of next year; and
  • SA GDP is still forecasted to grow at 1.2% this year, with the governor welcoming the reduced load shedding during the past few months.

For the week, election uncertainty impacted the currency, equity and bond markets. The local currency lost 1.66%, ending the week at R18.75 to the dollar, its biggest weekly loss since the week ended February 18. The JSE all share fell by just over 3% for the week, still managing to end the month of May marginally firmer. All the major sectors were weaker on the week as coalition dynamics around local politics weighed on investor sentiment.

Market Moves of the Week

Former President Donald Trump has been found guilty on all 34 charges of falsifying business records in a hush-money trial with a sentencing hearing scheduled for July 11, only days before the Republican National Convention. He is the first former US President to be criminally convicted. Serving time is unlikely, at 77 years old, Trump is a first-time offender and has been convicted of a non-violent crime, while the appeals process will take many months or even years to play out and won’t be resolved before the upcoming November election.

This case is the beginning of several cases that Trump is facing, including separate lawsuits in Georgia and Washington relating to conspiracies to overturn the 2020 election, while another in Florida surrounds mishandling classified documents, but two out of the three are federal charges that could be shut down if he enters office in November’s election.

The core personal consumption expenditures (“PCE”) price index increased 0.2% in April, in line with the consensus forecasts. The preferred inflation measure that is closely followed by the Federal Reserve showed core PCE rose 2.8% on an annualised basis. Including the volatile food and energy category, PCE inflation was at 2.7% on an annual basis and 0.3% from a month ago. The numbers were largely around expectations.

Major US indices were down on the holiday-shortened week, with both the S&P 500 and Nasdaq declining 0.51% and 1.1%, respectively. The blue-chip Dow Jones slipped 0.98%, marking a second straight week of losses. Despite the tough week, it was a winning May, with each of the major benchmarks registering a sixth positive month in seven. The Dow added 2.3% for the month of May, while the S&P 500 rose 4.8%. The Nasdaq gained 6.88%, notching its best month going back to November.

In Europe, inflation rose to 2.6% in May, statistics agency Eurostat said Friday, rising for the first time in five months. The higher-than-expected print did not sway market bets of a widely expected cut to interest rates at the ECB’s June 6 meeting, the first reduction since 2019. Core inflation, excluding the volatile effects of energy, food, alcohol, and tobacco, increased to 2.9% from 2.7% in April. The central bank for the 20-nation euro area began its latest hiking cycle in July 2022, increasing rates out of negative territory to 4% at present.

In local currency terms, the pan-European STOXX Europe 50 Index ended 1.03% lower, while the UK’s FTSE 100 Index lost 0.51% for the week.

In Asia, data from Japan’s Ministry of Finance on Friday confirmed that authorities stepped into the foreign exchange markets on two separate occasions to prop up the Japanese currency. The finance ministry stated that Japan spent 9.7885 trillion yen (approx. $62.25 billion) on currency intervention between April 26 and May 29. The yen has been hovering around 34-year lows, with recent strength heightening speculation of possible intervention by Japanese authorities.

Chinese equities were broadly flat over the week with the benchmark Shanghai Composite Index down 0.07% after an unexpectedly weak PMI manufacturing reading. The official manufacturing purchasing managers’ index (PMI) fell to a below-consensus 49.5 in May from 50.4 in April, marking the first monthly contraction since February. The gauge lagged the 50-mark level, separating growth from contraction.

Oil prices were weaker for the week, the Brent benchmark trading at $81.28, as ongoing demand concerns offset ongoing expectations that OPEC+ is set to maintain its oil production curbs. Spot gold ended the week at $2,326/oz, 0.29% weaker.

Chart of the Week

On Thursday, a New York jury found Trump guilty of all 34 felony charges of falsifying business records to hide a hush money payment to an adult film star to illegally influence the 2016 election. But if the political betting markets are to be believed, the presidential election campaign has shifted sharply in his favour during the trial. This is how RealClear Politics’ average of the probabilities of Joe Biden or Trump winning the November election have moved since the beginning of last year.

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