Weekly Fixed Income Market Commentary – 28th November – 2nd December 2022

Last week, the Phala Phala scandal took the spotlight amid mounting speculation that President Cyril Ramaphosa would be forced to resign, while internationally, the Chinese economy continued to be hit by surging Covid cases and waves of protests and unrests.

International Market Developments


FED officials have maintained their hardline tone, though markets keep shrugging them off with traders pricing in more than two rate cuts by the end of 2023. The FED’s James Bullard made comments stating that the central bank needs to raise interest rates quite a bit further, especially after a higher than consensus print for the change in non-farm payrolls and a sharp rise in wage inflation.

Recession Risk

Fed economists flagged that the chances of a US recession in the next year have risen to almost 50%, given a slowdown in consumer spending, the risk of further global economic setbacks, and further policy tightening.

The Chinese economy has been hit by surging Covid cases, a continued property downturn and more recent waves of protests. The Chinese protests took center stage, dragging down risk appetite, with some predicting that China will be forced to exit their zero-covid policy due to the public unrest. Reports on Monday morning suggest that some major cities have eased rules over the weekend, including abandoning the need for commuters to present negative PCR test results to travel on public transport.

Local Market Developments

The Phala Phala scandal took the spotlight amid continued speculation that President Cyril Ramaphosa would be resigning. The ANC NEC held an emergency meeting after the panel investigating the Phala Phala scandal found preliminary evidence that the President violated his oath of office, opening the way for potential impeachment. Subsequently, the President has decided to challenge section 89 of the report in the Constitutional Court.

S&P sees South African debt rising to 72%/GDP from 67%/GDP in 2023 on the assumption that the Government takes on R250 billion (roughly two thirds) of Eskom’s debt, while they see the current account balanced in 2022.

The Quarterly Labour Force Survey indicated that 204 000 jobs were gained between Q2 2022 and Q3 2022.  Manufacturing (123 000), Trade (82 000), Construction (46 000) and Transport (33 000) recorded the largest job gains, while job losses were recorded in Finance (80 000), Private households (36 000) and Mining and Agriculture (1 000) each.

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