Monday, July 29, 2019 / 09:00AM / United
Capital Research / Header Image Credit: Long Island Business News
The week to end 26th July 2019 proved eventful across different geographical areas. The International Monetary Fund (IMF) revised lower its growth expectation for the global economy to 3.2% citing that risks remain to the downside.
In terms of equity market performance, a largely bullish theme was seen across developed markets with pockets of decline in some emerging markets indices.
In the US, Q2-19 GDP growth slowed to 2.1% y/y from 3.1% y/y, albeit still outperforming Bloomberg consensus of 1.8%. Consumer and government spending buoyed output outcomes, offsetting the pullback in business investment. In line with our expectation, trade tensions between the US, China, and other countries took a toll of business strategic planning which reflected in the numbers. Yet, markets found succor in positive earnings releases. Coca-Cola, Alphabet, United Technologies and Unifax all submitted positive numbers amongst others.
In the Eurozone, the European Central Bank’s meeting sparked some risk-on sentiments. Although rates were left unchanged, commentary from the chair, Mario Draghi, sent a clear signal a rate cut imminent. For now, rates are expected to remain at present levels or at “lower levels”. Meanwhile, the UK welcomed a new Prime Minister to 10 Downing Street, as Mr. Boris Johnson took over from Theresa May during the week. With less than 100 days to the October deadline for BREXIT, Boris Johnson insisted that the UK will leave the EU with or without a deal. Nonetheless, equity indices in Europe up for the week.
In the BRICS-classified emerging markets, Russia’s Monetary Policy Committee lowered interest rates by 25bps to 7.25% citing lower inflation and the need to support economic growth. The bank also hinted on further cuts later in the year.
On the other hand, South Africa stood in the limelight as the Ramphosa administration announced further bailouts for public utility firm, Eskom. We saw reactions from major credit rating agencies with Fitch delivering a downgrade to South Africa’s credit rating outlook (taking it from stable to negative), while commentaries from Moody’s says the bailout is credit negative. It is worthy of note that Moody’s’ is the only major rating agency that has South Africa in investment grade, one notch above junk, with a stable outlook. Meanwhile, Brent prices rose 1.3% w/w to $63.3/b on reports that US crude inventory piles edged lower.
In the week ahead, we will be looking out for the outcomes of the Fed and Bank of England monetary policy meetings.