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Market & Economic Update

June 2016

Dear <<First Name>>,


Local News

  • Local GDP data for Q1 2016 was disappointing with a 1.2% quarterly contraction – the worst print since Q2 2015. The larger-than-expected contraction follows two quarters of really lacklustre growth and places South Africa, halfway towards a technical recession (two consecutive quarters of negative growth).
  • Fitch ratings agency kept its BBB- rating (outlook stable) on South Africa’s sovereign credit rating. SA has escaped the sub investment grade bullet in June giving the country the opportunity to enforce suggested reforms before the ratings agencies (Fitch & S&P) issue their next reviews in December this year.
  • South Africa's current account deficit widened in the first quarter of 2016 as exports slumped despite a recovery in the global prices of commodities and a weaker Rand. The current account deficit widened to 5% of gross domestic product (GDP)in the first quarter from a revised shortfall of 4.6% in the final quarter of 2015.
  • South African retail sales grew by 1.5% year-on-year in April, after expanding by a revised 2.9% in March.
  • South Africa's headline consumer inflation unexpectedly slowed to 6.1% year-on-year in May from 6.2% in April.
  • South African mobile phone operator MTN Group named the head of Vodafone Europe (Rob Shuter) as its new CEO, bringing in an outsider with a risk-management background 10 days after it agreed to pay a $1.7 billion fine in Nigeria.
  • South Africa recorded a larger-than-expected trade surplus of R18.73 billion ($1 billion) trade in May.
  • South Africa cleared Anheuser-Busch Inbev's $100 billion-plus deal to acquire SABMiller on Thursday, putting the world's largest brewer 'on track' to complete the merger within the next six months.

International News
  • The Central Bank of Russia cut its benchmark one-week repo rate to 10.50%, down from 11%. Rates have been unchanged since August 2015.
  • Microsoft is set to buy Linkedin for $26 billion.
  • In China, trade balance data saw a narrower-than-expected report out of the region for May 2016 as exports contracted 4.1% in Dollar terms and imports contracted 0.4% (est. 6.8% contraction) in dollar terms.
  • In the US, crude oil inventories fell by 3.2 million barrels, while unemployment claims of 264 000 were registered.
  • Copper has returned to continue severe underperformance in the commodity space, as supply of the base metal remains in abundance, as evidenced by increased warehouse inventories reported by the London Metal Exchange.
  • The yield on the 10-year German Bund, Europe's benchmark government bond, fell below zero for the first time as worries about a potential British exit from the European Union sent investors rushing for safe-haven assets.
  • U.S. import prices recorded their biggest increase in more than four years in May on rising costs of petroleum and other products, pointing to firming inflation as the drag from a strong Dollar and lower oil prices fades.
  • Annual inflation in Nigeria accelerated to 15.6% in May, its highest since February 2010, as the crisis in Africa's biggest economy deepens.
  • The Indian Rupee lost ground as the country's well-regarded central bank governor unexpectedly decided to step down, prompting doubts over future efforts to reform policies and tame inflation.
  • Germany, Europe's largest economy grew 0.7% between January and March, its strongest quarterly rate in two years, as soaring private consumption, higher construction investment and state spending on migrants more than offset weak foreign trade.
  • Italy's new bank rescue fund Atlante is preparing a sale process for one of the country's most troubled lenders that could start within weeks, sources said, hoping to defy tough market conditions and help stabilise the Eurozone's fourth-largest banking system.
  • The European Central Bank (ECB) is expected to reinstate Greek banks' access to its cheap funding operations, allowing lenders to come off an expensive emergency lifeline after more than a year as a reward for painful economic reforms. The funding access would be a big step in normalising an economy still in recession, weighed down by capital controls and adjustments related to its third bailout since 2010 worth up to 86 billion ($97 billion).
  • France and Germany agree Britain should start process to leave EU quickly.
  • Markets had their worst day on Friday after the Britons voted to leave the European Union. A whopping $2.08 trillion was wiped of Global Equity Markets.
  • China's May services trade deficit narrows to $19.1 billion.
  • An agreement to normalise ties with Turkey after six years will have a positive impact on Israel's economy.
  • Sri Lanka intends to impose a capital gains tax on profits from equities, a senior government minister said late on Monday, as the government attempts to shore up its finances to qualify for an IMF loan.
  • China's economy will grow at about 6.6% this year, and will need to be underpinned by policy support in the second half to counter downward pressures
  • South Korea's exports in June are forecast to have declined at a sharper pace than they did in May on an annual basis, leaving Asia's fourth-largest economy falling back on government stimulus for now to maintain growth.
  • Three suicide bombers blew themselves up at Turkey's largest airport, Istanbul Ataturk, killing at least 36 people.
  • Ireland's 10-year bond yield fell to record low 0.61%, France's fell as low as 0.21% and Dutch yields fell to 0.09%.
  • Only investors in Zambia’s stock market came up on Tuesday smiling after the Brexit. The Lusaka Stock Exchange All Share Index has gained a whole 2% since the votes were counted. 'It’s an economy and a market that’s been badly beaten up in the past year.'
  • United Overseas Bank , Singapore's number three lender, became the first bank in the city state to suspend its loans programme for London properties in the wake of uncertainties caused by Britain's vote to leave the European Union.

Big news stories after the British voted to leave the EU
  • Gold posts biggest rally since 2008
  • Oil prices dropped by more than 6%
  • Investors rush for Japanese Yen, US Bonds and Gold as safe haven
  • Australia and New Zealand shares dropped sharply
  • UK Interest Rates future rally
  • Southeast Asian stock markets plunged
  • There was a big sell off in UK Bank shares
  • David Cameron stepped down as Prime Minister
  • The Governor of the Bank of England said 'There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold.'
  • G7 finance leaders will take all necessary steps to calm markets
  • Scotland sees its future in the European Union despite Britain's vote to leave, First  Minister Nicola Sturgeon said on Friday, raising the spectre of a new Scottish independence vote and the possible dissolution of the United Kingdom.
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