Local and offshore equity markets continued their recovery in April, as concerns about rising US interest rates, Brexit and the Trump’s trade deal remained subdued.

US shares, as measured by the S&P 500, hit record highs in the last week of April. This followed US companies reporting strong growth in profits during the first quarter of 2019 and positive outlooks for expected profits in the second quarter. Locally, the All Share Index rose a further 4.02% led by financial and industrial shares.

The US Economy

The US economy, which many believe is approaching a cyclical slow-down typical of this stage of the economic cycle, continued to produce impressive economic statistics in April. The latest unemployment rate of 3.6%, is the lowest it has been since December 1969; growth in wages is advancing steadily, and 1st Quarter productivity grew by 3.6%, twice as much as expected. The improvement in productivity is particularly important as this allows employers to raise wages while still maintaining profit margins. These stats point to the strength of the US economy, a key component of current global growth.

Trump Trade War – Nearly there?

Until last week, negotiations to resolve the US/China trade war were on track with US treasury secretary Steven Mnuchin describing the status of negotiations as “we’re getting into the final laps”. However, in true Trump style, he has recently tweeted “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”. This tweet sent markets into a fear-induced sell-off. No doubt this is part of Trump’s negotiating tactics, however, it is a reminder that his unpredictable nature means that no deals should be presumed until one is indeed signed.

Brexit – Status Update

The EU and UK have agreed a further delay to Brexit until 31 October 2019. The UK could leave earlier if a withdrawal agreement is ratified by MPs and it is with this objective in mind that Government ministers are in talks with Labour leaders to find a compromise of the current deal. If they can agree, MPs will be given a chance to vote on the deal. If not, a range of alternative options will be put to them including (i) leave on 1 June 2019 (ahead of European parliamentary elections) with No Deal (ii) Leave under the current deal (iii) Completely renegotiate the current deal (iv) Hold a new referendum.

South Africa – All eyes on the Elections

The South African economy remains on pause whilst companies and individuals wait and see how the results of the national elections play out. The impact of the elections on President Cyril Ramaphosa’s ability to reform government, bring Eskom back from the brink, and deliver much-needed policy certainty to the investment landscape are key concerns.

With this backdrop, it is not surprising that The SA Chamber of Commerce and Industry’s (SACCI) business confidence index (BCI) declined to 91.8 in March from 93.4 in February. “The BCI reflects a depressed business climate that is dominated by concerns over continued difficult and uncertain domestic economic circumstances. The upcoming May 8 2019 general election adds to this uncertainty,” Sacci said in a statement.

Compiled by Mike Moore, Wealth Manager