After weeks of deliberations, President Cyril Ramaphosa has announced the cabinet of National Unity to warm reception by investors and markets alike, as it signals policy certainty and continuity in the short term. The real test, of course, will be economic performance for the long haul.
International Market Developments
The US presidential election and its aftermath has the potential to drive significant market swings in the second half of the year. US traders are keeping a cautious and close eye on news developments regarding the US presidential race, with some refining their positions in the aftermath of last week’s presidential debate in which Joe Biden was viewed by many to have underperformed.
The US FOMC meeting minutes of the 11-12 June meeting is scheduled for release on Wednesday and will likely shed light on why policymakers have lowered their expectations for 2024 interest rate cuts.
After nearly three years of inflation running well above the Bank of England’s 2% target, May 2024 finally saw CPI inflation falling back to 2.0% year-on-year from 2.3% in April, in line with the consensus. Although not being fully satisfied, the Bank of England is likely to view May’s figures with some relief. The Bank of England’s Monetary Policy Committee (MPC) voted to keep the Bank rate on hold at 5.25% which is in line with expectations among economists. Seven of the nine members on the committee voted in favor of this, however, two members felt that lower rates were appropriate, voting for a 25bp cut.
Local Market Developments
Locally, President Cyril Ramaphosa announced the new Government of National Unity (GNU) cabinet. The President allocated ministerial posts to coalition parties but retained Enoch Godongwana as finance minister, ensuring policy continuity. The DA’s John Steenhuisen has been given the Minister of Agriculture post. The swearing in of new ministers is expected to take place on Tuesday. On balance, it was viewed positively by investors, and financial markets are likely to react positively. Bond investors are particularly encouraged by the continuity in the finance ministry, which is perceived to remain firmly committed to fiscal consolidation.
South African CPI inflation remained unchanged in May, at 5.2% y/y (0.2% m/m), in line with the market consensus. Core inflation (which excludes food, non-alcoholic beverages fuel and energy prices), remained at 4.6% y/y, as underlying inflationary pressures stayed close to the midpoint of 4.5% y/y.
CPI inflation however remains above the 4.5% y/y midpoint of the inflation target range and has proven very sticky, which will likely keep the Reserve Bank’s tone hawkish in any near-term remarks.