Last week, market risk aversion rose markedly following concerns about the possibility of a US recession. Meanwhile locally, foreign holdings of South African government bonds increased.
International Market Developments
Risk aversion rose markedly following concerns about the possibility of a recession in the US following soft economic data and weak earnings reports from the US. The Fed funds futures priced in a series of very rapid rate cuts until January 2024 as markets fretted about a potential US recession, going as far as speculating that the FOMC could enact an emergency cut in rates before the next scheduled announcement data of 18 September.
Geopolitical risk escalated following assassinations by Israel of a senior Hezbollah commander in Beirut and a Hamas leader in Tehran. The risk is that the conflict spills over into a wider Middle Eastern war as Iran has vowed to execute retaliatory strikes against Israel.
Looking ahead this week we have the US July CPI to take center stage on Wednesday, with headline CPI expected at 3.0% y/y.
Local Market Developments
Last week, S&P Global commented that addressing infrastructure bottlenecks in South African energy, ports, rail, and water is crucial for overcoming institutional weakness and driving growth. The agency warned that without further action, the SA economy risks falling further behind. They also highlighted that success in making reforms sustainable would hinge on political stability and a focus on implementing change.
In the markets, we continue to see foreign holdings of SA fixed-rate government bonds increasing modestly. Foreigners’ holdings of government bonds increased to 25%, from 24.8% at the end of June (down from a peak of 42.8% in March 2018).