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Commentary: 30 September 2019 – Last week was characterised by heightened levels of geopolitical risk. There continues to be fallout from the attack on Saudi Arabian oil facilities, which knocked out 5% of world oil supply. While Yemen’s Iran-backed Houthi rebels have claimed responsibility for the attack, both Riyadh and Washington have blamed Iran, with Saudi authorities saying that it will consider a response once its investigation is complete. Whichever option the Saudis choose – be it military, economic or diplomatic – their decision will be complicated by Trump’s belligerent stance and his promise to keep on squeezing Iran’s economy with sanctions. Over the weekend, the US ordered more troops and weapons to the Middle East to assist with the protection of Saudi oil assets. Fortunately, after an initial spike, rising US shale inventories and optimistic reports around the restoration of Saudi capacity have meant that the oil price has settled below $63 again.
Political battles are also being waged in the US. The Speaker of the House of Representatives, Nancy Pelosi announced a formal investigation of impeachment against Trump, who apparently condoned a Ukrainian investigation into Joe Biden. The move is unlikely to gain traction because of the Republican majority in the US Senate (even though Republican support of Trump is not guaranteed); nevertheless, it signals firm intention by the Democrats to get rid of Trump by any means possible.
Politics is by no means less messy in Britain where British Prime Minister Boris Johnson is adamant that the UK will leave the EU, with or without a deal, come the 31st October. It also appears that the EU (along with his fellow Tory MPs and the British public at large) are fast losing patience with Johnson.
The real value of global exports fell by 0.4% in July, compared to the same month last year, but although milder than the 1.7% fall registered in June, it marks the sixth fall in the real value of exports in the last eight months. The fall largely reflects the ongoing trade tensions and, say analysts, things are getting worse, not better. Since the start of the trade war at the beginning of 2018, average US tariffs on Chinese exports have risen to more than 23%, from 3.1% in January 2018, marking a level of trade protection unmatched over the past 40 years.
On the local front, SA saw larger FDI inflows in the second quarter, compared to the first, as domestic firms received debt and equity funding from their foreign parent companies. Inflows totalled R26.3bn, from R11.7bn in the first three months of the year, according to the SARB’s Quarterly Bulletin.
CPI for August rose by more than expected as food prices grew at their fastest pace in more than a year, accelerating to 3.8% year-on-year, largely due to an increase of 8.6% in the prices of breads and cereals. Inflation expectations, as surveyed by the Bureau for Economic Research, lowered slightly to 4.6% for 2019, but remained stable at 5% for 2020. Below is the IMF’s forecast for SA average inflation to 2024.
Finance Minister Tito Mbweni has announced that the “mini budget” will be postponed by a week, and will now be presented on the 30th October. No reason for the decision was given but it is likely that either he or Ramaphosa are unavailable earlier in the month.
By Bridget Kelly, Santam
Disclaimer:
This research has been written by the economist at Santam Structured Insurance Limited (“the Insurer”). Whilst all care has been taken by the Insurer in the preparation of the opinions and forecasts and provision of the information contained in this report, the Insurer does not make any representations or give any warranties as to its correctness, accuracy or completeness, nor does the Insurer assume liability for any losses arising from errors or omissions in the opinions, forecasts or information irrespective of whether there has been any negligence by the Insurer, its affiliates or any officers or employees of the Insurer, and whether such losses be direct or consequential. Nothing contained in this document is to be construed as guidance, a proposal or a recommendation or advice to enter into, or refrain from entering into any transaction, or an offer to buy or sell any financial instrument. This communication is not intended nor should it be taken to create any legal relations or contractual relationships. Santam Structured Insurance Limited is an Authorised Financial Services Provider under South African law (FSP 1027).