News in South Africa 29th September:
1. Global stocks dropping:
World stocks were on track for their longest losing streak in two years on Thursday as the sight of oil prices nearing $100 a barrel compounded concerns about persistently high global interest rates.
There was brief respite from the dollar’s strength in currency markets, but it was Wednesday’s big drop in U.S. crude stocks that heightened nerves about another supply-side shock just when the global economy needs it least.
US crude had hit $95 a barrel for the first time since August 2022 and while both it and $97 Brent prices eased fractionally in London trading they were 30% higher than at the end of June.
On Thursday, the JSE’s All-Share index gained half a percent, bolstered by a 11% rally in Spar and a 6% gain in Capitec following strong results. But resource shares like AngloGold and Gold Fields lost more than 4%.
Europe’s oil and gas stocks were up 0.5% and close to their highest since 2014, whereas the prospect of higher energy costs and sticky inflation piled more pressure on bond markets.
Ten-year U.S. Treasury yields, which are the benchmark of global borrowing costs, were above 4.6% for the first time since 2007 having started September at 4%.
Triple-A Germany’s 2.93% yields hit their highest in 12 years before news that inflation there had slowed, while Wednesday’s announcement that Italy’s budget deficit is now widening again pushed its 2-year yields briefly to a 11-year high.
“What we have got is a beautiful inflection point,” Mizuho’s Head of Global Macro Strategies Trading, Peter Chatwell, said, explaining that markets were now sensing that both economic growth and inflation could stay strong next year.
“The repricing is applying some stress to credit spreads as well as other things,” Chatwell said. “If the higher rate environment persists it is potentially much more difficult to keep debt levels stable.”
Traders were also watching U.S. lawmakers’ efforts to avoid a government shutdown in Washington.
With European stocks in and out of the red and U.S. S&P 500 futures barely budged, MSCI’s main global equities index which tracks 47 countries was in danger of a 10th straight daily fall, a losing streak not seen since 2021.
2. Meat prices drop:
While Heritage Day – the so-called “braai day” – is past us, South Africans can afford to have more than one gathering around the fire, with meat prices continuing to drop.
The latest food basket data from the Pietermaritzburg Economic Justice and Dignity group (PMBEJD) shows that meat prices were generally the only foods to come down in price over the last year – while fruits and vegetables continued to surge.
According to the PMBEJD, its nutritional basket of foods has increased by another R30 in September and will set consumers back R5,155.77.
This is R31.43 (0.6%) higher than August 2023, and almost R350 higher than the same basket in September 2022.
The basket comprises 44 food items that feature in the monthly shopping of the majority of South African households and gives an indication of real price shifts at a retail level in the country, even when compared to the official inflation rate.
Year-on-year inflation for the basked was at 7.3% – this is lower than food inflation tracked in Stats SA’s CPI, which came in at 8.0% in August. The PMBEJD’s year-on-year basket price difference was also 7.3% in August.
While ‘real’ food inflation appears to be coming in lower than the Stats SA basket, not all things are equal.
24 of the 44 items in the basket are still showing double-digit price jumps compared to a year ago, and six of these items are more than 20% higher. All of these high-increase food items are fruits and vegetables.
Onions and potatoes have seen the biggest increases overall.
- Onions: +63%
- Potatoes: +47%
- Butternut: +40%
- Oranges: +35%
- Green Pepper: +34%
- Carrots: +29%
On the other side of the equation, five food items have actually come down in price – and two prices have remained relatively stable. Aside from tomatoes (-18%) and cooking oil (-21%), the price reductions or stabilizations are for meat.
- Cooking oil: -21%
- Tomatoes: -18%
- Beef: -7%
- Inyama yangaphakathi (tripe): -3%
- Wors: -1%
- Fish: 0%
- Frozen chicken portions: 0%
3. Chicken and egg prices set to soar:
Industry insiders and economists have confirmed that South African shoppers will have to stomach higher poultry meat and egg prices as the sector battles its worst highly pathogenic avian influenza (HPAI) outbreak yet.
The severity of the anticipated price shocks is as yet unclear, but the general manager of the SA Poultry Association (Sapa) Izaak Breitenbach has confirmed to Moneyweb that shortages could last well into the festive season as the industry tries to gain control over the situation.
“We are already seeing shortages in commercial table eggs in the marketplace and that will put upwards pressure on the price of table eggs,” says Breitenbach.
“The second one is obviously chicken meat – we forecast that we will see a shortage of chicken meat going into the festive season and that will also put upwards pressure on the prices of chicken meat.”
There is however hope that the implementation of some mitigating measures will help soften the pricing blow.
One of these, according to Sapa, is the possible importing of some 11.5 million fertilised eggs into the country to offset local shortages.
These eggs will help plug the shortfall of broiler chickens. Breitenbach adds that the industry expects to rely a lot more on chicken imports and that total imports leading up to the December period will see a significant uptick.
High densities in the inland region and a more insidious strain of the virus are just some of the factors driving the spread of the disease.
Alarm bells
September alone has seen all listed JSE-listed poultry producers sounding the alarm on the severity of the latest outbreak.
Astral Foods was the first, in this latest outbreak, to speak up about the impact of the bird flu on the industry. Following the release of a trading update, the country’s largest poultry producer called the outbreak “the worst” to hit the inland region.
Shortly afterwards Quantum Foods reported that the virus had wiped out 1.5 million of its layer and breeding stock, costing the company R106 million.
RCL Foods reported on Thursday that it had to cull about 410 000 of its birds after the virus affected 11 of its 19 sites in the inland region, dealing a R115 million blow to date.
The Rainbow chicken producer described the virus as moving “at a rapid pace”.
4. SA heading for a serious financial crisis:
Renowned economist Dawie Roodt warned that South Africa is heading for a serious financial crisis, causing the rand to collapse and inflation to rise.
Speaking to State of the Nation, Roodt explained that South Africa’s current debt-to-gross domestic product (GDP) ratio is 73%. It excludes the debt from state-owned enterprises.
The situation is set to become much worse as the country’s fiscal deficit this year will be around 6% of GDP.
This means that South Africa’s debt-to-GDP ratio for the current financial year, which is set to end in March 2024, will increase to over 75%. The next year, it will increase to 80%.
“The increased debt burden is becoming a major problem because the debt has to be serviced,” Roodt said.
He said the United States and Europe have been selling South African debt and that local banks and asset managers started buying it.
However, it comes at a premium as these institutions demand higher returns for the increased risk. This means the state has larger interest payments.
It has reached such concerning levels that Reserve Bank Governor Lesetja Kganyago has warned that it is starting to put banks’ balance sheets at risk.
Roodt said South Africa is in a toxic situation where it has a huge fiscal deficit, forcing the state to borrow a lot of money.
The foreigners are selling the debt, and local banks are buying the debt. At the same time, long-term interest rates are increasing, and the rand is weakening because of it.
“We are getting into a situation where the debt levels are rising to such a level that we are heading for a serious financial crisis,” he said.
5. Economy shedding jobs:
Despite positive job figures in the second quarter of the year, Stats SA says the economy is shedding full-time jobs.
Employment in the formal non-agricultural sector went up by 0.4 percent between April and June, driven by community and business services, as well as the mining industry.
Total employment was up by a percent compared to the same period last year, mostly driven up by part-time jobs.
The quarter ending June 2023 saw a rise in employment by 64,000 part-time jobs.
Community and business services were again the two sectors to drive up employment.
Part-time jobs in the construction industry and the electricity sector also contributed to positive figures.
Compared to the same quarter last year, part-time employment went up more than twice the quarterly figure.
Stats SA’s Matlapane Masupye said some industries appeared to be ditching full-time jobs for more flexible contracts.
“The number of full-time workers decreased by 25,000 in the quarter ending June 2023, dropping from 8,816,000 in March 2023 to 8,791,000.”
In contrast, the country’s official unemployment rate sits at 32.6%.
All information sourced from articles posted by: Fin24, BusinessTech, Moneyweb, DailyInvestor, and EWN.
