In this week’s market review, TreasuryONE’s Head of Market Risk, Wichard Ciliers, and Ilze-Marie le Roux from ETM Analytics, discuss key developments as September draws to a close. China’s economic struggles, driven by its property sector crisis and trade tensions with the West, remain a major concern. Despite significant stimulus efforts, including a $2 trillion Yuan package and home loan rate cuts, the Chinese economy faces challenges in reaching its 5% growth target. These actions could impact global commodity demand, particularly benefiting South Africa’s trade if demand for exports such as copper and iron ore increases.
The discussion then shifts to the US, where the upcoming labour data, including nonfarm payrolls, could influence the Federal Reserve’s decision on future interest rate cuts. Red flags in the US labour market, such as rising unemployment and wage growth above inflation, point to potential recessionary trends. The markets have already priced in aggressive rate cuts, but if labour data worsens, the Fed may need to revise its stance.
Locally, South Africa’s inflation is trending lower, which may prompt the South African Reserve Bank (SARB) to cut rates more aggressively in the future. The Rand has strengthened, riding a wave of positive market sentiment, but concerns remain about the sustainability of this trend. Geopolitical risks, particularly in the Middle East, could disrupt the global market and trigger a flight to safe-haven assets like the US dollar.
Finally, while the Rand has benefited from South Africa’s improving economic outlook, there are still several risks on the horizon. The potential for a hard landing in the US or a shift in global conditions could lead to increased volatility in the currency markets.