Home Articles ANALYSIS: MARKET COMMENTARY January 2015



What a start to the year! If you’d told me in December over Christmas lunch that we’d have such a volatile and uncertain start to 2016 in the global economy, I don’t think I would have believed you. By Garth Saunders

The weak rand and continued drought heightened the risk of inflation breaching the SARB’s upper target 6% for an extended period. As a result they increased the repo rate by 50 bps in the January meeting. This helped to support the rand into the end of January. The January and February US payrolls report continue to show strength, but this was not sufficient to slow a sharp decline in global equities, as continued negative economic data out of China (imports down 7,6% and exports down 1,4%), risk of deflation on the back of low oil prices, and general negative investor sentiment pressured stocks.

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The EUR and JPY continued to show strength as investors sought safety without the risk of interest rate hikes. Japan along with many other European countries now have negative yields on their government bonds as countries race to devalue their currencies to fend off deflation and boost export growth. The GBP weaken as Brexit (British exit from the EU) fears and low growth/inflation weighed on the currency. The ZAR touched its weakest level reaching 17.97 versus the USD in low overnight liquidity on 11 January before strengthening into the end of the month. This appeared to be driven by weak Chinese data and a 6–7% sell-off in Chinese stocks, which sparked an exit from all risk assets on the day.

Closing rates for January: EURZAR R17.44 (+2.2%); USDZAR R16.06 (+2.8%); GBPZAR R22.89 (–1.2%); EURUSD $1.086 (–0.5%); GBPUSD $1.43 (–3.8%)


Global equities continued their sell-off with many markets entering bear market territory (–20% from their tops). Low oil prices, fear of deflation, rising US rate expectations and weak economic growth data kept the pressure on stocks into February.  Closing levels for January: JSE ALSI 50,693 (–1.8%); EUROSTOXX 3,279 (–6.5%); S&P500 2,063 (–1.2%); FTSE 6,263 (-1.7%).


The local market was unsure of what to expect from the January MPC meeting with economist forecasts ranging between 0 and 50 bps for the repo rate announcement. In the end a 50 bps hike was announced, alleviating inflation expectations.

The Swap curve narrowed 50 bps on average across all tenors; basis flattened with the pivot at the five-year point with 1 month to 2 year points narrowing an average of 3 bps and 6 year to 30 year points widening an average of 15 bps. Government bond yields narrowed 50 bps on average across all issuances.


Commodity prices continued to weaken on poor global growth prospects. Oil was the main driver trading below 2008/09 crisis lows as supply continued to outstrip demand and inventories remain high. Some investment houses are calling for oil to touch $20 a barrel before the year is out. Gold strengthen on save haven buying and reduced interest rate expectations. Gold closed at $1,113 (+4.8%) and Brent crude at $33.59 (–8.5%).


Oil continues to be the worst-performing asset, down 14.2% followed by the Eurostoxx index, down 11.3%. Bonds and gold continue to see safe haven buying with US 10-year note yields up 10% and gold up 8.3%. Although volatile, the rand is 1.8% weaker against the USD.


Global uncertainty, negative investor sentiment and concerns over growth have resulted in an increase in volatility across all markets. Technically, stock markets look set to continue their downward trajectory. This has put some pressure back on the USD as markets price in slower Fed interest rate increases and may provide some relief for the rand.

AUTHOR | Garth Saunders, CA(SA), CFA