In this week’s market review, TreasuryONE and ETM Analytics discuss the significant political and economic developments impacting global markets. The unexpected withdrawal of President Biden from the presidential race marks a historic moment, being the first US election since 1976 without a Clinton, Bush, or Biden on the ballot. This development introduces uncertainty, with Kamala Harris emerging as a likely Democratic candidate. Such political shifts often lead to increased investment in safe-haven currencies like the US dollar, which is expected to remain strong in the near term.
The discussion shifts to the potential implications of US monetary policy, particularly in light of upcoming Personal Consumption Expenditures (PCE) data. Lower PCE figures could signal a favourable economic environment, bringing the Federal Reserve closer to its 2% inflation target. A potential interest rate cut by the Federal Reserve in September could significantly impact the market, potentially leading to a “risk-on” situation that would benefit emerging markets while reducing the dollar’s strength.
In South Africa, the focus is on domestic inflation data, which remains above 5%. Predictions indicate a potential decline in inflation by early 2025, potentially allowing the South African Reserve Bank to consider interest rate cuts, following any moves by the Federal Reserve. The Bank of America anticipates a series of rate cuts in South Africa, starting as early as September, which could provide relief to consumers. The review concludes with a look at the South African rand, which is expected to be influenced more by international developments than local news in the coming months. The currency is predicted to stay within a 17.50 to 18.50 range, with movements largely driven by global economic conditions and geopolitical events. The anticipation of positive news from the Middle East could further impact the rand’s stability.