The Week Ahead

Local

Key Takeaways from Mining and Manufacturing production and sales data reeleased by Statistics South Africa:

1. Mining Production Decline: In July 2024, overall mining production fell by 1.4% year-on-year, with notable decreases in iron ore (-19.0%), ‘other’ metallic minerals (-36.2%), and gold (-3.5%).
2. Positive Growth in Manganese and Chromium Ores: Despite the overall decline in mining, manganese ore and chromium ore experienced positive growth, increasing by 27.0% and 23.3%, respectively.
3. Strong Mineral Sales Growth: Mineral sales surged by 24.5% year-on-year in July 2024, driven largely by significant increases in gold (117.5%), manganese ore (70.8%), and Platinum Group Metals (PGMs) (16.3%).
4. Manufacturing Production Increase: Manufacturing production rose by 1.7% compared to July 2023, with the food and beverages, and basic iron and steel sectors making the largest positive contributions.
5. Mixed Performance in Manufacturing Sales: While seasonally adjusted manufacturing sales increased by 1.6% from June 2024, the overall sector showed mixed performance, with positive contributions from some divisions being offset by declines in others, notably the motor vehicle sector.

The South African Reserve Bank (SARB) is now expected to lower its repo rate by 25 basis points (0,25%) to 8.00% at its September 19 meeting, driven by slowing inflation. This adjustment would mark the first rate cut in over four years ago. In a recent Reuters survey, 18 out of 21 economists forecasted this rate cut, while the remaining three expected it to stay at 8.25%. Median projections suggest that the SARB will continue to ease rates over the next three quarters, reaching 7.25% by May.

International

The European Central Bank (ECB) has reduced interest rates for the second time this year, lowering the key deposit rate by 25 basis points to 3.5%, as expected. This decision comes amid declining inflation, now nearing 2%, and growing economic concerns. ECB President Christine Lagarde emphasized a data-dependent approach, indicating no fixed path for future rate adjustments. The ECB also revised its economic growth forecasts downwards for the coming years while maintaining its inflation outlook. Concurrently, the ECB cut two other interest rates by 60 basis points each. As inflation showed signs of easing, with compensation per employee slowing, the ECB aims to moderate monetary-policy restrictions to support consumption and investments. Nonetheless, growth challenges persist, and analysts anticipate further rate cuts, with forecasts suggesting reductions at every ECB meeting next year.

In August, the US Consumer Price Index (CPI) rose by 0.2%, aligning with expectations, and increased by 2.5% year-over-year. Core CPI, excluding food and energy, rose by 0.3%, slightly higher than the expected 0.2%. Real average hourly earnings grew by 0.2% for the month and 1.3% year-over-year. Despite continued inflation above the Federal Reserve's 2.0% target for 42 months, the overall trend appears to be downward. The M2 money supply has risen since October but is still down 3.1% from its April 2022 peak. Given the current inflation data, rate cuts are anticipated at the next Fed meeting this week, with further quarter-point cuts expected at the remaining meetings this year and continuing into 2025, though caution is needed to prevent inflation from re-accelerating.

There is a lot of central bank activity in the coming week with the Bank of Japan (BOJ) and Bank of England also scheduled to meet. Polls currently suggest no changes in rates from the BOE and BOJ, although the Fed is expected to move rates 25 basis points lower.