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In the markets: What to watch this week

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The Wednesday wait

A lot of focus will be on the 2017 Budget Speech taking place on Wednesday.

In 2016 finance minister Pravin Gordhan increased Capital Gains Tax (CGT) from 13.7% to 16.4% and increased “sin tax” on alcoholic beverages and cigarettes, as well as the fuel levy.

But, against a backdrop of sluggish growth; the looming threat of a sovereign credit rating downgrade; and uncertainty in the global economy, many are concerned about how the finance minister plans to finance the budget deficit, which is currently at 4.2% of GDP.

Another concern is how government will tackle over expenditure in an effort to tighten fiscal spending.

Gordhan this year specifically made a call to the public for tips on views for funding free education for tertiary students and achieving an inclusive economic growth strategy.

Investor sentiment

The rand is currently in a strong position, at around R13 against the dollar, compared with an average of around R13.60 in January. The Dow Jones is at lofty levels of above 20 000, a psychologically significant level. The risks of the market switching to a “risk-off” position could hurt the rand and local stocks – should the Budget speech be poorly received by investors.  

Adding to market anticipation, and the effect of global investor sentiment on SA’s markets, are the minutes of the Federal Open Market Committee meeting, which are set to be released at 9pm on Wednesday as well. This could add to global fund managers’ asset allocation changes.

An effective hedge against all the uncertainties that investors have been using is gold, which has climbed over 10% since December 2016.

Markets in the US are closed in observance of President’s Day today.

Other announcements due this week include:

Monday

  • Euro Area: Consumer Confidence Flash

Tuesday

  • Germany: Market Manufacturing Purchasing Managers’ Index (PMI)

Wednesday

  • Germany: Ifo Business Climate
  • Great Britain: Second Estimate GDP
  • US: Existing Home Sales

Thursday

  • SA: Producer price index (PPI)
  • Germany: GfK Consumer Confidence
  • US: Unemployment Claims and Crude Oil Inventories

Friday

  • US: New Home Sales 

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

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