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Global risk back on the agenda

by , 21 July 2014

Last week the SARB raised rates by 0,25%. There was no clear consensus before the decision with a little over half of all the economists surveyed predicting no change. I would like to point out that I called for a 0,25% hike in my last update. Despite the fact that the economy remains weak, the SARB's primary mandate remains price stability, in other words fighting inflation. Given the fact that inflation is currently well above the banks upper threshold of 6% and we have yet to see it peak, many analyst are pricing in yet another increase at the SARB's next meeting in 2 months' time.

Ukraine and Israel tensions rise

At the end of the week, a couple of international events took centre stage. Israel invaded Gaza, in a move that has been widely anticipated. The exact implications of this move are hard to predict, but due to the rather fragile state of the region at the moment, global markets reacted rather negatively.

In the Ukraine a Malaysian passenger aeroplane was possibly shot down by a missile killing all on-board. Neither party in the conflict riven area claimed responsibility but early evidence seem to be that it was the Russian supported rebels who fired the missile. The majority of those killed were European but there were also a significant number of Americans and Asians on board. Universal condemnation is likely to be followed by yet more pressure for increased sanctions against Russia.

The fact that Malaysia was also involved in in the previous plane crash to make international headlines, appears for now to be a tragic coincidence. In fact at the time of the crash a number of other airlines were also flying over the region.

Due to importance of both regions as energy exporters, we say oil prices rise for the first time in a month. Strangely the gold price has yet to follow suit. This could be due to the strength of the dollar, which remains the ultimate global safe haven.

CPI takes centre stage

Local CPI figures will be released on Wednesday. Expectations are for a rise to 6,7% year on year. If we get a number higher than this, the probability of yet another rate hike would rise dramatically. We may even see some market participants pricing in a 0,5% hike.

The US will also be releasing CPI figures. As the unemployment rate in the US is currently just above 6%, the only justification for continued stimulus by the US Federal Reserve is the lack of inflation. Should we see signs that this is no longer true, expect a great deal of pressure for the Fed to accelerate its tapering program. 

Global risk back on the agenda
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