It has been a tough six months for global markets with the frequent reminders of an uncertain economic environment tempering market gains. Macro themes that have been and remain prevalent at present are: slowing economic growth, the timeline relating to the rising interest rate cycle in the U.S. and the U.K.’s decision to leave the European Union.
In China, slowing growth remains a very real concern. The region posted quarter one 2016 GDP quarter on quarter growth at 6.7%, its slowest level since quarter one 2009. The rate of growth for the region has now not improved for eight straight quarters.
In the U.S., the tightening of interest rates (which commenced late last year) has been paused for the time being. Despite a short term lapse in the Non-Farm employment figures for May, the region has shown signs of an improving economy. Indications are that the U.S. Federal reserve has renewed a dovish stance in terms of monetary tightening as it remains cognoscente of global affairs despite their local economy showing signs of improvement.
In Europe, markets were surprised at the decision by the U.K. to leave the European Union after 43 years of membership. The full implications thereof are uncertain and will remain so in the uncertainty of future negotiation. A withdrawal agreement now needs to be negotiated and while negotiations are underway, the UK will remain a member of the EU. If the negotiations are not completed within two years, then a forced withdrawal could occur, although there could be a vote to extend the negotiation timeline. Also in Europe, the European Central Bank announced (in March) the expansion of its quantitative easing program in an attempt to try avert the threat of deflation within the Eurozone.
In South Africa, market participants would have been disappointed with quarter one 2016 GDP data which showed a 1.2% quarter on quarter contraction. The economic contraction was led by the mining and quarry segment which fell by 18.1% largely due to significantly lower production in Platinum Group Metals (PGMs) over the period. A second quarter of economic contraction (should it be realised) would allude to a technical recession although recent trade surplus data would suggest a recovery in mining exports might be enough to aid marginal growth in the second quarter.