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Market review: October 2017

08 November 2017

During October US lawmakers took important steps to implement President Trump’s proposals to reform tax, which among other things entail cutting the top US corporate tax rate from 35% to 20%. Markets were encouraged by this move and the Dow Jones Industrial Index broke through the 23 000 mark for the first time. US jobless claims returned to former low levels after a brief spike during hurricane season. US inflation remains contained and the Federal Reserve kept rates on hold at its meeting on 1 November. UK inflation came in at 3% for the year to September, the highest level since March 2012.

Back to the budget drawing board

31 October 2017

Facing a R50 billion tax revenue shortfall, Minister Gigaba and the National Treasury team only had three options to choose from in preparing the Medium Term Budget Policy Statement (MTBPS). They could try to squeeze more out of a struggling tax base, cut spending despite increasing demands from various quarters, or borrow more, adding to a rapidly rising debt pile. In the end, they chose a combination that favoured the latter. Due to the missing R50 billion, the budget deficit (the difference between spending and tax revenue) will be 4.3% of GDP for the current fiscal year instead of 3.1% as projected in February. This is a massive jump and much worse than expected. The deficit will narrow somewhat to 3.9%, but this will not be enough to stabilise Government’s debt level over the MTBPS’s three year forecast period. Instead, the ratio of debt to GDP will rise towards 60% by 2021.

Shoppers not put off by politics

23 October 2017

Another week, another Cabinet reshuffle, raising the already high level of political uncertainty. Announced only days ahead of this week’s mini-Budget, the timing is unfortunate, especially as there are suggestions that the reshuffle may be linked to a nuclear deal that would be as unaffordable as it would be unnecessary. While the rand wobbled on the news, the overall market reaction was fairly muted. Why? Firstly, as damaging as they are to the management of departments (there have been three energy ministers this year, while the communications department has had seven ministers since 2009), reshuffles are not a surprise to investors anymore. And it is surprises that move markets, not the known or expected.

Investors closely watching 2017 medium term budget policy statement, says Old Mutual Investment Group

23 October 2017

Investors will be looking to the Finance Minister Malusi Gigaba’s Medium Term Budget Policy Statement (MTBPS) this week to provide more certainty about the commitment of the government to fiscal consolidation, reform of State-owned enterprises (SOEs) and a higher economic growth rate.

quick poll

Question

If you had to hazard a guess, when do you reckon the COFI Bill will be signed into law?

Answer

2026, as promised 2027 looks more likely Impossible to say More consultation needed

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