The wildebeest, also known as the gnu (pronounced “NOO”), is often referred to in the South African wildlife community as a “spare parts animal.” This nickname is attributed to its unique combination of features: the tail of a horse, the horns of a juvenile buffalo, the sloped back of a hyena, the stripes of a zebra, the rump of a donkey, and the beard of a billy goat. The formation of the Government of National Unity (GNU) has led to significant contention between the ANC and DA over ministerial positions, with both parties jostling for certain key portfolios, particularly the trade and industry ministry. Like the diverse anatomy of the wildebeest, assembling a functional government from parties (ANC, DA, IFP, PA etc.) with differing ideologies is proving to be more complex than anticipated.
Investors faced a week of uncertainty in both equity and currency markets as they awaited the President’s cabinet announcement. The DA threatened to walk away from the agreement unless Ramaphosa stuck to his original offer. Volatility increased across the board, leading to diminished investor sentiment. The Rand rallied strongly on Friday after ANC Secretary-General Fikile Mbalula posted on X saying “Almost done with GNU discussions, in the best interests of all South Africans. It will be done as promised.”
At the time of writing, GNU talks are back on track however no formal announcement has been made at this point. There is hope that we will have some clarity by the end of the weekend, however this could be pushed out again if further negotiations are required.
The JSE ALSI ended the week marginally lower, down -0.08%, lead lower by the financial sector down -0,85%. Industrials also ended lower, -0,52%, while resources bucked the trend ending the week up 2.67%. The SA Listed Property sector also ended the week in negative territory, down 0.39%. The Rand appreciated against the Dollar this week, largely driven by Friday’s performance closing the week 1.19% stronger at R18.18/$.
Market Moves of the Week
The US presidential debates began this week with President Joe Biden and former President Donald Trump facing off in their first engagement leading up to the elections later this year. Post-debate commentary was largely unfavourable for President Biden and the Democrats. Many political analysts labelled the debate a “disaster” for the party. Former White House Staffer Barbara Heineback remarked that Democrats are “in trouble” and are well aware of it following Biden’s performance.
U.S. real GDP growth was revised up by 0.1 percentage points to an annualized rate of +1.4% in the first quarter, in line with consensus expectations. However, the composition was weak as consumption growth was revised down by half a point to +1.5%. Additionally, gross domestic income (GDI) growth was revised down to +1.3%. The average of real GDP and real GDI increased by 1.4% in Q1, adding to the evidence that activity growth has moderated. The core personal consumption expenditure price index rose by just 0.1% from the previous month. On a year-on-year basis the index rose 2.6%, down from April’s 2.8% rate.
New-home sales in the US slumped in May as elevated prices and mortgage rates continued to challenge the housing market. New single-family home sales decreased by 11.3% to an annual pace of 619,000, the slowest since November, according to government data released Wednesday. The figure was below almost all estimates in a Bloomberg survey of economists and reflected declines in all four major US regions.
US small caps are on track for their worst start to the year in history compared to their larger peers. The Russell 2000 index is underperforming the S&P 500 by nearly 15% so far into 2024, setting the small-cap gauge on pace for its worst first six months of a year ever. If this negative spread holds through year-end, it would mark a fourth consecutive year of underperformance by small caps.
Most major US stock indexes ended the week mixed in a light news week during what seems to be a lull in market activity ahead of second-quarter earnings season. The S&P 500 and Dow Jones ended marginally lower, both posting a return of -0,08%., while the tech heavy NASDAQ composite posted positive performance, closing the week up 0.24%.
In the UK, elections are set for 4th July. Amidst Rishi Sunak’s early departure from D-Day celebrations and an ongoing betting scandal, the Conservative Party continues to poll at historically low levels. The rise of Nigel Farage as leader of Reform UK has further threatened some of the safest Conservative seats. Current polls indicate a substantial Labour victory. GDP in the UK grew 0.7% for the first quarter of the year, beating expectations of 0.6% growth, this is the fastest Q1 growth of any G7 country.
In Europe, the first round of French elections is scheduled for Sunday, 30 June, with the second round on 7 July. There is a significant risk that President Macron’s decision to call a snap election may backfire, with polls suggesting the Assembly could be dominated by the hard-right Front Notional (FN) and the left leaning New Popular Front (NFP), making political cohabitation between an FN government and a centrist party challenging.
Additionally, the ECB Forum on Central Banking begins in Sintra, Portugal, on Monday. Policymakers from around the world, including ECB President Christine Lagarde and Fed Chair Jerome Powell, will be speaking at the event. The European Commission’s economic sentiment indicator ticked lower to 95.9, below estimates of 96.2, driven by weaker demand from industrial companies, retailers and construction businesses.
Both the FTSE 100 Index and the Euro Stoxx 50 closed lower, down 0.89% and 0.27% respectively.
In Japan, the Yen slumped to its weakest level on record against the Euro, highlighting its persistent depreciation. The Yen fell by as much as 0.3% to 171.60 against the Euro on Wednesday, though it strengthened in early Thursday trading. The minutes of the June Bank of Japan meeting suggested a rate hike could come as soon as the next meeting on 31 July. Industrial production rebounded in May with a +2.8% month-on-month increase, following a -0.9% decline in April, surpassing market forecasts of +2.0%. Additionally, Tokyo’s core CPI accelerated by +0.2 percentage points from May, reaching +2.1% year-on-year, in line with market expectations. May retail sales beat expectations rising 3% year-on-year led by demand for autos.
Off the back of a weaker Yen, the Nikkei 225 index gained 2.56% for the week as export-heavy industries contributed to positive market performance.
Chinese equity markets weakened this week as concerns around the slowing economy tapered risk appetite. Foreign selling also contributed to the week’s decline, as global funds sold about RMB 49.4 billion worth of assets, putting China’s market on track for its first monthly outflow since January. The National Bureau of Statistics reported a marginal increase in industrial profits of 0.7% in May, down from April’s 4% gain. An improvement in commodity prices, helped boost profits for mining companies. Looking ahead, investors will keep a close eye on China’s official purchasing managers’ index to be released on Sunday.
The Shanghai Composite index recorded a decline this week, down 1.03%, while Hong Kong’s benchmark Hang Seng Index slid 1.85% for the week.
Chart of the Week
South Africa achieved its first primary budget surplus in 15 years. Revenue exceeded non-interest expenditure by R31.6 billion, or 0.4% of GDP, in the year through March 2024. This achievement reflects Finance Minister Enoch Godongwana’s firm stance on funding for debt-stricken state companies such as Transnet, providing financial support only if strict conditions were met, including the implementation of recovery plans and the sale of non-core assets. Source: South African Reserve Bank & Bloomberg.
