MIXED NEWS ON ALL FRONTS

This is an extract from the Weekly Review of 11 October 2024. The full Weekly can be found here (for free, but sign up if you want to receive notifications of new editions and other BER publications)

The Week In Perspective, written by Tracey-Lee Solomon

The domestic data releases were mixed this week, with a downtick in manufacturing in August and mining output looking a little better. There were some positive steps on the reform front, but also disappointments, with a setback on port reform. The international economic newsflow focused on the US monetary policy outlook, with markets now scaling back expectations for the pace of easing, and disappointment around the extent of stimulus in China.

Most of the US-linked headlines, however, followed developments around Hurricane Milton, which made landfall in Florida as a (downgraded) Category 3 storm. This was just two weeks after Hurricane Helene became the deadliest US storm since Katrina in 2005. Millions of people were told to evacuate, and there was concern about extensive damage to infrastructure. However, while the damage was severe, it seems to be not as bad as feared with the worst-case scenario avoided.

Important for the longer-term global growth dynamics, the tit-for-tat trade tariffs continued this week. China imposed retaliatory tariffs on EU brandy imports after the European Commission announced it had received enough support to impose tariffs of up to 45% on imports of Chinese-made electric vehicles (EVs). While China’s “brandy tariff” (ranging from 30.6% to 39%) will have little impact on the EU, Beijing is considering a tariff hike on imports of large-engine (2.5l or more) vehicles, which would hit the already-struggling Germany the hardest since they exported $1.2bn worth of such vehicles to China last year.

Staying in China, earlier this week, the National Development and Reform Commission (NDRC) held a briefing to provide an update and outline for the country’s economic plan. Of note was the government’s plans to frontload 100bn yuan ($14 bn) worth of ultra-long sovereign bonds initially budgeted for 2025 and another 100bn yuan for construction projects. Markets were somewhat disappointed with the scale of the measures when compared to measures previously announced by the People’s Bank of China (PBoC). However, the NDRC is not mandated to announce new spending plans. Nevertheless, this disappointment meant the Shanghai stock exchange lost 1% w-o-w up to Thursday. More news on fiscal stimulus is expected over the weekend.

In contrast to the prior week, most non-China financial markets performed better this week. The US S&P 500 gained 1.5%, Germany’s DAX rose 1.3%, and Japan’s Nikkei 225 climbed 2.1%. However, the UK’s FTSE 100 fell 0.5%. Disappointingly, the local JSE Alsi declined this past week. This was in line with the move towards less “risky” assets as the conflict in the Middle East escalated and concerns about the health of the global economy intensified. This, coupled with revised expectations for US monetary policy, resulted in a stronger US dollar last week. The stronger greenback followed higher-than-expected nonfarm payrolls (NFP) data on Friday.

The US NFP increased by a solid 245 000 jobs in September, while the unemployment rate also unexpectedly dropped to 4.1% from 4.2% in August. In addition, the NFP for August and July were also revised upward. The dollar kept that momentum and, on Thursday, closed at its highest since early August. Despite this, the R/$ exchange rate was little changed w-o-w. Indeed, the rand appreciated against both the euro and the British pound. In the same vein, the SA 10-year bond yield ticked down.

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