September started out on a better note for emerging markets after their torrid August. How long-lasting their time in the sun will be, however, remains to be seen.
The early September return of risk-on sentiment to financial markets, however, has been predominantly a response to both the news that a Chinese delegation is due to visit the US to discuss trade relations and in anticipation of widespread central bank monetary accommodation over the next couple of weeks. With so much at stake, it is far too early to say whether the rosier conditions are here to stay.
The week after, the US Federal Reserve meets and markets are pricing a 100% probability of at least a 25 basis point cut from the Fed on 18 September. Over the next 12 months, the market is pricing in a greater than 50% probability of 100bps of cuts from the Fed. Investec Treasury economist Tertia Jacobs considers what government could do to revive confidence over the second half of the year, which will be critical if we want to see growth sustained at the 3% level it achieved in the second quarter. She says South Africa needs a social compact based on a cohesive political response; something that has been lacking for many years.We need some kind of political and policy interventions because so far politics have failed the economy.
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