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SA Market News - 13 July 2022

Lesego Mthombothi Lesego Mthombothi 12/07/2022
SA Market News - 13 July 2022 SA Market News - 13 July 2022
SA Market News - 13 July 2022 Lesego Mthombothi
Global Macro

The past few days have been full of high drama; The Conservative Party in Britain finally summoned up enough intestinal fortitude to rid itself and the nation of a largely useless and frankly narcissistic prime minister called Boris Johnson, Mr Shinzo Abe, Japan’s longest-serving former prime minister and the founder of so-called “Abenomics” was assassinated in an uncharacteristic shooting in Japan while electioneering on behalf of his party and in Sri Lanka, the people went on the rampage, finally setting fire to the residence of president Gotabaya Rajapaksa, who resigned weeks after the country defaulted on its foreign loans. And all the while the war in Ukraine kept grinding along with no end in sight.

On global equity markets, the S&P 500 oscillated between being just outside and then just inside bear market territory (defined as a 20% decline from peak), while the Nasdaq Composite remains firmly in bear market territory being more than 27% lower than its November 2021 peak. Former South African and the world’s richest individual Elon Musk withdrew his $44 billion bid for Twitter, whereupon the social media platform’s shares slumped. Twitter intends suing Musk.

There was good news on the US employment front last week, with the US economy creating many more jobs than forecast in June-372 000 compared with the broad consensus of between 250 000 and 295 000. While very welcome from the perspective that it indicates that the US economy remains in good health, it also signals that the US Federal Reserve still has plenty of room to increase interest rates to attempt to dampen inflation with pushing the economy into recession.

US inflation numbers are out later this week with a growing body of opinion suggesting that the inflation rate for June could be even higher than May’s 40-year high of 8.6%. If the rate is indeed higher, it strengthens the case for a further 75 basis point rise in US federal funds rate at the next FOMC meeting later this month.

Although many people breathed a sigh of relief when Johnson eventually resigned last week, nobody in Britain is under-estimating the size of the task that faces the incoming prime minister. Inflation is forecast by the Bank of England to reach 11% by October, the waiting lists in the National Health Service (NHS) are now chronically long with no meaningful reductions in sight and economic growth is forecast to be the worst in Europe apart from Russia and Ukraine next year.  Taxes as a percentage of GDP are forecast to be at 35% next year, the highest in decades and it is difficult to see how taxes can be brought down any time soon, especially as defence budgets will need to be augmented in the face of the continuing war in Ukraine and the need to maintain a decent percentage of GDP for Britain’s commitment to Nato.

The British workforce is also shrinking, putting further upwards pressure on wages and salaries. Since the start of the pandemic, the UK workforce has shrunk by 1.2%, as many workers from the European Union states have returned home after Brexit and have not come back.

And then finally, the pound sterling has weakened considerably against a resurgent US dollar. This will make imports significantly more expensive.  



Whoever wins the election to become Britain’s next prime minister will have his or her work cut out, trying to keep a fractious party together. The Conservatives have always been known as a party of low taxes and free markets but they will find themselves in a corner with little if any wriggle room. The next general election is only just over two years away and nothing short of a miracle will change the party’s fortunes at the polls.

Local Macro

The dreary Eskom saga continued unabated last week and into this week as the utility struggled to meet demand. The only slightly bright spot was the fact that the illegal strike ended with Eskom and the unions agreeing on a 7% wage increase. This is only a one-year deal, however, and so the whole process could erupt again in a year’s time.  

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. This inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

With more than 200 countries and jurisdictions committed to implementing them, the FATF has developed the FATF Recommendationsor FATF Standards, which ensure a co-ordinated global response to prevent organised crime, corruption and terrorism. They help authorities go after the money of criminals dealing in illegal drugs, human trafficking and other crimes.  The FATF also works to stop funding for weapons of mass destruction.

In October 2021, the FATF published its ‘AML & CFT Measures - South Africa’ Evaluation report, the result of assessments that took place between 2019 and 2021.  The report highlighted areas of concern including corruption, tax related crimes and fraud. It concludes that, should South Africa not increase its ability to detect and prosecute financial crimes, there is a risk of the country being placed on their so-called  ‘Grey List’. The FATF has two lists-black and grey. The black list contains only two countries-Iran and North Korea-and these two countries do not engage in any way, shape of form with FATF to assist with anti money-laundering. The grey list contains 23 countries that are under closer scrutiny by FATF as they attempt to rectify structural deficiencies in their regimes. These countries are Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Haiti, Jamaica, Jordan, Mali, Malta, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Sudan, Syria, Turkey, Uganda, UAE, Yemen. Zimbabwe was recently removed from the grey list.

This is potentially extremely serious for South African investors. If SA gets grey listed, it would find itself as an outsider in the global financial community, with heightened scrutiny and more onerous financing terms. Global investors tend to stay away from grey listed countries. At a practical level it means that foreign banks would have to add an extra layer of bureaucracy when dealing with SA clients and in some circumstances this may result in South Africans being denied the ability to participate in certain products and markets.

Along with most other emerging market currencies, the rand continued weakening against a strong dollar. This is likely to continue for as long as the US keeps increasing interest rates and commodity prices remain relatively lacklustre.



Company Results
No companies have reported in the past two weeks.
 
Gainers & Decliners 

Gainers (%)
CMO                    33.33
CAA                     24.9
VVO                     17.14
TON                     15.38
SSK                       13.16
BAU                     12.82
CRP                      7.63
MIX                      7.02
RNG                     6.59
NPK                      5.86
 
Decliners  (%)
LUX                      -24.53
KBO                     -20.0
 CFRO                  -11.11
GML                    -8.54
BKI                       -7.80
ISB                       -7.77
WEZ                     -7.75
MMP                   -7.55
SOLBE1               -6.98

 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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