The SARB’s leading indicator, scheduled for release today, is a useful ‘backup tool’ in estimating shifts in South Africa’s economic cycles. It increased to 113.6 points in July from a revised 112.8 points in June. On a year-to-year basis, growth in the indicator accelerated to 4.0% in July from 2.8% y/y in June. July also marked the fourth consecutive month of year-on-year growth and the first month-on-month expansion since May. More broadly, GNU-related optimism is likely starting to be reflected in the leading indicator. Still, the impact of this optimism will, however, be limited without corresponding policy changes to address domestic inefficiencies and liberalise the economy.
Looking externally, the data card is relatively empty, with the spotlight instead on forward guidance set to be provided by officials from the Bank of England, European Central Bank, and US Federal Reserve today. Generally, their comments should point to more rate cuts in the months ahead as the global monetary cycle continues to turn. Notably, however, the Fed is dealing with a much more resilient economy than the BoE and ECB, meaning there is less risk of outsized rate cuts in the US than in the UK and Eurozone. Either way, monetary easing in funding nations will, in time, support risk appetite as more yield-seeking liquidity is released into the global financial system. With SA’s risk profile improving after the formation of the GNU, the ZAR should benefit from capital inflows in the months ahead.