Eskom

Fitch Ratings has affirmed South Africa’s sovereign credit rating at BB+ or junk, with a stable outlook.

Fitch Ratings has affirmed South Africa’s sovereign credit rating at BB+ or junk, with a stable outlook. Fitch said: “The affirmation and stable outlook takes into consideration signs of recovering governance standards and the prospect of a mild cyclical recovery but also indications that financial challenges at key state-owned enterprises (SOEs) remain substantial and the fact that government debt has yet to stabilise.”

The comments come on the back of a renewed round of load sheading announced by Eskom on Thursday evening, the main reason being that striking workers at the power utility are sabotaging infrastructure. The cash-strapped parastatal Eskom had offered a 0% wage increase to workers.

In the US, the Federal Open Market Committee (FOMC) on Wednesday voted to raise the federal interest rate to 2%, the seventh hike of the tightening cycle. In comments following the meeting, Fed Chairman Jerome Powell was extremely upbeat on the outlook for the US economy, pointing to record-low unemployment and still-low inflation. The improving outlook prompted FOMC members to raise their forecast of the number of 2018 rate hikes from three to four and to increase their economic growth and inflation forecasts. The FOMC now forecasts that the US economy will expand by 2.8% in 2018, up from a 2.7% projection in March. Core inflation is expected to rise 2% this year. That is up from the FOMC’s prior 1.9% estimate.

The European Central Bank (ECB) announced on Thursday that it would reduce the volume of its asset purchase programme from €30 billion a month to €15 billion a month starting from October, before lowering it to zero at the end of the year. With ECB president Mario Draghi’s eight-year term set to expire in October 2019, it is conceivable he could end his tenure without ever having presided over an interest rate hike. This signals the end of quantitative easing in the European Union.

The price of Brent crude oil fell by 4.35% to around $73 per barrel despite the positive global growth outlook. If this trend continues, consumers may see some relief in the coming months.

 

Regards,

SECURITAS – Wealth Management