Nedbank: Monthly Insights: 3 April 2017


Executive Summary ( View the full report )
• With all the political uncertainty locally, we have provisionally adjusted our growth forecast down to below 1% and the rand moderately weaker. We still foresee some downside risk to the repo rate if inflation maintains its stay below 6% for most of this year.
• The trend of asynchronous monetary policy will likely persist. We maintain our view that the Fed will likely achieve its dual mandate of price stability and full employment this year, and as a result, will probably see two more rate hikes materialising before year end. The main uncertainties are whether the dual mandate is sustained over the medium- to long-term (unlikely in our view), together with the timing of the Fed rate hikes, which will probably be communicated in due course from Fed guidance.
• The FX outlook still remains biased to dollar strength over the medium-term, premised on asynchronous monetary policy and possible stimulus from the Trump administration, in whichever size and form this takes. We believe that the Brexit remains a key event risk for Europe, but this is likely to remain a long-term feature, with ongoing negotiations likely to impact the sterling and euro if negotiations reach a deadlock or if negotiations proceed smoothly.
• The outlook for the rand remains highly uncertain, in our view. Further weakness and volatility is expected as the market grapples with the implications of President Zuma’s cabinet reshuffle and particularly the change in leadership at National Treasury. We believe that the rand will be hurt by any signs of fiscal slippage and governance lapses.
Overall, the developed market equity indices may remain upbeat, while that of EMs remain volatile. Commodity markets seem to be doing the SARB’s bidding, as inflation is expected to ease off a high base in 2016.

Local petrol and food inflation may provide some respite for embattled consumers.


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