May PMI drops

The Purchasing Managers' Index in May dropped to 49.3 compared to the 50.3 recorded in April. This is a sign that business conditions deteriorated.

"Nevertheless, firms are hopeful that the new government will bring some much-needed stability to the markets. Future sentiment rose to the highest for 13 months, showing that there is still confidence in the South African economy. Nevertheless, recent PMI readings show that the government faces a difficult struggle to reignite growth this year," David Owen, economist at IHS Markit noted.

Yesterday’s Q1 GDP number, which showed that growth in the South African economy contracted by 3.2%, resulted in the Rand weakening from 14.4000 levels up to 14.7700 before closing at 14.6500. This was the biggest contraction in a decade and will most likely force the SARB to cut rates earlier than expected.

Growth forecasts for 2019 will certainly be lowered from the 1.0% SARB expectation and heighten the ratings agencies concerns. On the global front, we have the Dollar still trading softer after Fed Chairman Jerome Powell hinted at possible rate cuts in the US in a speech last night. Wall Street closed sharply higher on the news, with the S&P up 2.14%, the Dow up 2.06% and the Nasdaq up 2.65%.

Stocks in the Far East have followed and are all up this morning. Gold is holding on to its recent gains and is trading at $1 326.82 at present. Market focus will switch to the US employment data out in Friday and the G20 finance ministers meeting over the weekend.

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