In the markets: What to watch this week

With the market frequency at such high pace and uncertainty rife, the South African economy has managed to be a beneficiary with Balance of Trade and Foreign Exchange Reserves surging.

Evidently the impact of having a weak rand has trickled down into the real economy in a number of positive ways. Tourism numbers are steadily increasing peaking in the December period, the middle of our summer and holiday season.

Foreign exchange reserves peaked in 2012 and steadily declined until they bottomed out at the end of 2015. Looking at forecasts the exchange reserves should increase gradually, all else the same. 

With our currency reaching all-time lows in January and recovering modestly since then, it seems like South African products and services are becoming more competitive. The trade balance data released last week shows a significant spike to highs never seen on record.

Manufacturing production data is due on Tuesday and will provide some clues whether businesses are really benefitting.

The turmoil in Europe post-Brexit seems to be increasing. Italian banks have been red-flagged as a potential risk to the global economy as stagnant growth and low interest rates make it difficult for banks to loan money at a profitable rate.

Other risks present themselves in Asia, where new corporate debt in China is freezing up amid rising defaults and cancelled debit sales. Seventeen publicly-traded Chinese bonds have defaulted so far this year, up from six in 2015, and at least 188 firms have scrapped or delayed debt sales since the end of March. Debt ballooned to a record 237% of GDP in the first quarter on the back of massive lending designed to boost economic growth.

The risks in Europe and Asia could have a negative effect on the rand but a positive effect on our competitiveness.

Focus will shift to the Bank of England (BoE) “Super Thursday” on monetary policy to see whether BoE Governor Mark Carney will add stimulus as a result of Brexit. He has already hinted that monetary policy stimulus may be required to balance out the shock from the referendum results.

Chinese GDP figures due Friday are forecast to fall to 6.6% in the second quarter from a year earlier, down from 6.7% in the first quarter. 

June inflation data from the US will be released on Friday. The data will be monitored closely for the signs that prices are heating up to the Fed’s 2% target.

Other important announcements this week:

Monday
• IT Industrial Production
• US Fed Labor Market Conditions

Tuesday
• DE Inflation Rate
• US Wholesale Inventories and JOLTs Job Openings

Wednesday
• CN Balance of Trade
• EA Industrial Production
• ZA Retail Sales
• US Beige Book

Thursday
• US PPI and Jobless Claims

Friday
• EA Balance of Trade
• US Retail Sales, Inflation, Consumer Sentiment and Fed Beige Book

Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.