ELECTION OUTCOME PROJECTIONS SIGNAL THAT A NATIONAL GOVERNMENT COALITION IS ON THE CARDS

The Week in Perspective written by Lisette IJssel de Schepper

The SA election grabbed the headlines this week and was even featured by many global outlets ahead of, during, and after the vote on Wednesday. Flying under the radar of the election projections coming through on Thursday, the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) announced its interest rate decision. The central bank kept the repo rate unchanged - see the domestic section for more.

Although the National Election results are still trickling in, with just over half of the votes counted by the time of writing, projections are starting to line up. However, it remains premature to make a firm call on the final share allocation per party – official results are expected this weekend. Still, some trends, are clear. The ANC is on track to lose its majority in parliament but remains the biggest party at a national level. The rise of the MK party is remarkable (the number of votes outside of KwaZulu-Natal is particularly significant) and largely responsible for the loss in votes for the ANC as the established opposition parties failed to make significant inroads. In fact, at this stage, it is not inconceivable that MK will end up with more national votes than the EFF. With the ANC most likely losing its majority at a national level, it will have to cooperate with other parties to remain in charge of government. There seems to be no clear single party that could form a coalition with the ANC without either party making significant concessions. The question is how the horsetrading will play out. As expected, KwaZulu-Natal and Gauteng provincial results are also tight, and this could play into national government negotiations.

In financial markets, the rand started Thursday on a fairly firm footing but lost ground once the CSIR poll put the ANC national vote at about 41%. Yields rose and markets became more jittery. A later estimate by ENCA for a 45% ANC outcome contributed to some renewed rand strength. The rand remained volatile throughout the day and closed around a one-month low against the dollar. To be sure, volatility was always expected, and yesterday’s ranges are not out of line given the levels of uncertainty around the election outcome. The rand is set to remain volatile over the next two weeks as parties negotiate a national coalition.

On the JSE ALSI, it was mainly bankers and retailers that suffered yesterday as markets digested election projections. Global equity markets were also under pressure with renewed concerns that the Fed may keep the interest rate higher for longer. As such, US bond yields climbed, while European bond yields ticked up following the somewhat higher-than-expected German CPI print (see international section below). Global sentiment also contributed to the rand weakness and underperformance of SA assets. The Brent crude oil price steadily moved higher last week, but data showing an uptick in US inventories amid weaker demand pushed prices lower late yesterday. Traders are hesitant ahead of an OPEC+ meeting this weekend, which should provide an update on whether the producer group will extend, deepen or unwind supply cuts. Some expect existing production cuts to be extended into 2025.

Read the domestic and international sections in the rest of the publication here.

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Editor: Lisette IJssel de Schepper

Tel: +27 (21) 808 9777

Email: [email protected]

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