The United States could see fewer cuts than previously forecasted. Locally, S&P revised the outlook on South Africa’s local (BB) and foreign currency (BB-) from stable to positive.
International Market Developments
The US CPI inflation report for October printed in line with expectations, with headline inflation up by 2.6% year-on-year against a market consensus of 2.6% (from prior 2.4%) Core inflation remained at 3.3% ( vs consensus: 3.3%).The US inflation data is likely to alter the Fed’s thinking on future rate cuts, where implied expectations for a cut at the next FOMC meeting (December 18th) are lower, at only 69% or less for a chance of another interest rate cut in the US this year.
The United States could also see fewer cuts than previously forecast, under the Trump Presidency with its expected protectionist policies. The US dollar has been outperforming since Trump’s election victory. The US dollar has strengthened against both the EUR, and GBP.
Geopolitical developments have risen with the main news arising from the decision by US President Biden having authorized Ukraine to use American long-range missiles to strike deep inside Russia. The change in thinking over this was reportedly in response to the Russian decision to deploy North Korean troops against Ukraine.
Local Market Developments
S&P unexpectedly revised the outlook on South Africa’s local (BB) and foreign currency (BB-) from stable to positive in its bi-annual review.
South Africa’s political stability has increased following the May general elections, raising the potential for faster GDP growth from an acceleration in reform implementation that raises private sector fixed investment. GDP is projected to grow at an average rate of 1.4% over 2025-2027. The ongoing logistics bottlenecks will however continue constraining economic activity.
Gross government debt remains elevated at 76%, but S&P notes that fiscal consolidation is ongoing, debt yields have declined, and portfolio flows have improved. Deep liquidity in the domestic currency and an active trading in this currency are beneficial for the South African economy. S&P noted that fiscal policy predictability is higher regarding efforts toward achieving primary surpluses and fiscal consolidation, even as October 2024 MTBPS shows a small slippage.