Last week, markets increased bets on a September rate cut following the US CPI print, while domestically, the demand for South African local-currency bonds continues to surge buoyed by the newly minted GNU.
International Market Developments
Last week saw two big US events, Fed Chair Powell’s semi-annual testimony to the Senate and House, and the publication of US CPI inflation figures. During the former, Powell reiterated that the Fed needed more good data to increase its confidence that inflation was returning to target. On the latter, some of that seemingly good news finally arrived with better-than-expected CPI data for June. Both headline and core CPI undershot, with the annual rate of headline CPI inflation falling to 3% for the first time since March 2021. The core measure also undershot expectations, at 3.3% (consensus: 3.4%). Financial markets reacted strongly to this weaker headline figure, with 10y US Treasury yields falling.
In addition to developments around the Fed, this week has also been focused on the US Presidential race, with questions over Joe Biden’s health and whether he would continue to run dominating the headlines. To date he has remained defiant, reiterating in a press conference that he would not step down unless there was evidence that there was ‘no way to win’.
Saturday’s shocking assassination attempt against Donald Trump will only serve to introduce further unpredictability into an already volatile campaign that was already emotionally charged for hardcore supporters on both sides. Trump may benefit from a short-term spike on popularity post the attempted assassination, but we will have to see if he can keep that momentum going into the elections.
In the United Kingdom, the incoming Labour government received some good news when, after nearly three years of running above target, UK CPI inflation returned to the Bank of England’s objective of 2% in May.
Local Market Developments
Locally, despite the unfavorably chilly weather in SA, the demand for South African local-currency bonds continued surging, driven by optimism around the country’s new broad coalition government and prospects for interest-rate cuts as inflation moderates. South Africa’s Finance Minister Enoch Godongwana outlined the nation’s fiscal parameters as the newly formed coalition government gathered for the first time in a closed-door meeting to map out priority areas from economic reform to investment.
Looking ahead, the SARB will announce its interest rate decision on Thursday. The MPC is expected to keep the repo rate steady at 8.25%, given that the FOMC has not triggered rate cuts yet.