Market Commentary

To hike or not to hike that is the question... This week was all about what is happening in western central banks. The unexpected turn to a more pro-hike view from a normally dovish Fed governor weighed on markets in Europe, where sentiment was already blue following the choice of the European Central Bank against expanding its stimulus program. The market seems to view this as a turning point for African markets, by tempering excitement for additional stimulus, the ECB’s decision raised questions about how much further the emerging-market rally can run as stocks trade near 14-month highs and bond yields remain close to the lowest levels since 2013. As often is the case, the picture for African markets is mixed in both cases and until there is more clarity about when exactly the US interest rates will be increased, some volatility is to be expected creating opportunities for the risk -seekers.

September means returning from summer holidays but this year it is also a key month for global markets. One can expect volatility to shoot higher as we have quite a number of key events over this month. The Fed, Bank of Japan and European Central Bank will all hold policy meetings in September. One of the overhang for African markets remain the timing of the US rate hike. This will potentially take some air out of a rally in equities and bonds of African markets. Friday’s US jobs data came in lower than consensus expectations reducing prospects that the Fed would move quickly to increase interest rates, propping up demand for riskier assets. The US bond market is however discounting a rate hike before the end of the year with 10-year US Treasury yields on course for their biggest monthly rise in over a year. Markets were pricing in a 24% chance of a rate increase next month, and a more than a 50% chance of higher rates by the end of the year. The small miss means uncertainty will probably remain as to what will happen at the Federal Funds rate in September.

South Africa recorded a second consecutive monthly trade surplus in June as exports of vegetable products climbed, while oil imports also rose. The surplus reached 12.5 billion rand ($880 million) last month compared with a deficit of 22.95 billion rand in the same period last year. These latest trends could help support the rand and reduce the chances of higher interest rates.

Some African markets seem not to know which direction to follow as signs emerge that world markets are losing momentum as the post-Brexit rally has reached its peak. Some weak corporate results tarnished the bright picture that dominated Wall Street’s run contaminating Asian and European markets along. The recovery in resources also stopped following the retreat in the prices of oil, copper and precious metals. After the latest robust run in worldwide markets in anticipation of possible monetary stimulus programmes from the world’s major central banks to offset any Brexit consequences, it now seems that the world markets are waiting for a correction.