Although global market volatility has come off of the recent highs seen at the beginning of the week, volatility measured by the CBOE VIX index remains elevated at 27.85. As a rule of thumb, any VIX reading above 20.00 underscores elevated sensitivity and uncertainty among markets, according to the economic literature. Following last week’s soft US labour print, It stands to reason that traders continue to be tentatively on the watch for any further signals of US recession risks. Additionally, traders are assessing how much further the BOJ could raise interest rates, as the central bank is expected to continue on the path away from low interest rates, or what is commonly referred to as ultra-loose monetary policy. While it has been a slow data week in the US, the BOJ’s minutes from the July MPC meeting will help calm some nerves. The minutes demonstrated that the bank was less hawkish compared to first appearances when the MPC delivered a larger-than-expected 15bp hike last month. Moreover, Japanese monetary policymakers have commented that raising interest rates amid elevated market uncertainty would be inappropriate.
On the local front, the market will have the June release of SA manufacturing production to consider. It seems as though the ongoing absence of load-shedding through May failed to affect manufacturing production as much as it did in April, but this may be attributed to a wait-and-see mentality ahead of SA national elections on 29 May. On the whole, output remains well below pre-Covid levels, but the recent trend of improvement is somewhat encouraging, which could be the case in June post the election results. It is worth considering that SA’s PMI reading for June remained in contractionary territory, underpinning pessimism amid sluggish demand. Lacklustre demand is expected to show up in June, and the upcoming production print is thus expected to show ongoing weakness in manufacturing. Eskom’s energy availability factor continues to trend higher, coupled with optimism that the GNU could lead to some revival in the industry, which will only become apparent in the near to medium term.