December 2019
Markets, exchange rates, commodities, international developments
Two of the three major issues that impacted the economy and markets throughout the year – the US-China trade dispute and Brexit – turned positive in December, and will alleviate pressure on world economic growth in 2020, which should recover gradually. (There was no change in the 3rd issue, namely US interest rates, which is expected to remain unchanged in 2020).
The imminent signing of the phase 1 US-China trade deal and good chance of avoiding a “no deal” Brexit, caused share markets to increase, the US yield curve to steepen and the US $ to depreciate.
The JSE ALSI increased 3.1% in December – gaining 8.2% in 2019 after declining -11.4% in 2018.
Listed Property lost -2.5% in December to end the year -7% down; General Retailers lost -0.3% and -21.9% for the year; Industrials gained 2.2% but was -1.5% down for the year; Financials gained 0.6%, but was down -4.3% in 2019; and Resources gained 6.7% and 20% over the year.
The ALBI increased 9.8% in 2019 as the yield on the R186 declined 7% to end the year at 8.26%.
Caution should be exercised when analysing international share markets’ performance over the year – as a rate increase in the US in December 2018, a government shutdown and trade pessimism caused share markets to tumble in December 2018 – so, 2019 gains are overstated. A better gauge is the 2019 performance compared to the average of the first 11 months of 2018 (see in brackets).
The Dow Jones gained 22.4% in 2019 (but only 13.5% vs the average of the first 11 months of 2018), S&P 28.9% (17.1%), UK FTSE 12.1% (1.9%), German Dax 25.5% (7.7%), French Cac 26.4% (12%), Japanese Nikkei 18.2% (5.2%), Hong Kong Hang Seng 9.1% (-3%), Chinese Shanghai 22.3% (3.1%) and Australian ASX 19.1% (11%).
Following an inversion in August, the gap between the US 10- and 2-year yield widened to around 30 basis points in December, while the US$-index declined 1.4% (still ending 2019 0.9% stronger).
Less risk and a weaker dollar contributed to higher commodity prices and stronger rand. The gold price increased 3.6% in December to $1 517 per ounce to end the year 18.3% higher. Brent oil increased 9.5% in December to end 2019 25.3% up at $67.2 per barrel. Platinum was up 7.5% in December to end the year at $966 per ounce, 21.4% higher than end 2018.
Following lots of volatility, the rand ended 2019 at R14/$, 2.6% stronger than end 2018.
Formal sector employment (excluding agriculture)
Formal sector employment declined by 28 000 in Q3 from Q2 to 10.142 million.
Average monthly earnings increased 3.7% YoY (to R21 966) - meaning an after inflation decrease.
Employment will remain subdued in 2020 – as there are no policy changes to boost growth and jobs.
In fact electricity shortages and politics will ensure another low jobs growth year in 2020.
Inflation and repo rate
YoY CPI for November down to 3.6% from October’s 3.7%.
CPI still kept low by housing (24.6% weight in the index) – YoY rentals only 3.5%.
Medical aid (8.9%), electricity (11.6%) and water (7.1%) prevented lower CPI rates.
These numbers - again - confirm that the SARB’s MPC kept the repo rate too high in the past (as CPI is way below the target of 4.5% and ceiling of 6%), stifling growth and job creation.
This mistake may however cause confusion in future - if the CPI is estimated to increase to e.g. 5.5% in 2020 and they increase the repo rate, they will be accused of biasedness/inconsistency.
Credit
Private sector credit growth slowed in November - MoM in November up 0.2% vs October’s 0.4% and YoY in November 6.6% vs October’s 7.3%.
Households’ reverted to instalment-, overdraft- and credit card debt to finance Black Friday sales. Instalment credit MoM up 1.1% (0.9% October), overdrafts 2% (-0.3%), credit cards 1.3% (1.2%).
Retail and Wholesale trade, passenger cars, FNB House Price Index (SA = seasonally adjusted)
Total domestic trade performed mixed in October. (Note: Wholesale sales dominate domestic sales).
MoM SA Retail sales for October down -0.2% from 0.6% in September. YoY in October 0.3%.
MoMSA Wholesale sales for October up 0.7% from 1.9% in September. YoY in October -1.2%.
New passenger car sales YoY for November up 1.3% vs October 2.4% and total sales down -5.8%.
International trade
Trade surplus (inc BLNS) of R6.1 billion in November. Year to date surplus is R10.5 billion.
Mining, manufacturing, and electricity production (QoQSAA=quarter on quarter seasonally adjusted)
October production numbers are better despite electricity problems.
Mining MoMSA in October up 1% from 1.1% in September. YoY down -2.9% in October.
Manufacturing MoMSA in October up 2.7% from -2.4% in September. YoY down -0.8%.
Electricity MoMSA in October -1%. YoY in -1.9%.
Courtesy: Multivest Economic Division