Macroeconomic data in the US continued to confirm a positive trend and this was reflected in equities maintaining their improvement. The Trump administration’s proposed tax reforms gained traction in both the Senate and Congress which provided further impetus for the markets. All the major US equity indices traded at record highs, with the Dow Jones returning 3.83%, the S&P 500 2.81% and the tech heavy NASDAQ 2.17%.
For South Africa the moment of truth arrived during the month in the form of the three major ratings agencies pronouncing on their evaluations of the local economy. Fitch opted to keep its ratings unchanged at BB+ with a stable outlook. Moody’s opted to place its ratings on review for a downgrade – the decision being held over until after the February budget. S&P on the other hand, not unexpectedly, decided to downgrade SA’s long term local and foreign currency ratings by one notch to BB+ and BB respectively. The announcement triggered a sharp fall in the Rand which however recovered rapidly to gain 3.04% against the Dollar for the month.
The Reserve Bank kept interest rates unchanged when the monetary policy committee (MPC) wrapped up its last meeting for the year. That leaves the repo rate at 6.75%, where it has been since July’s cut of 25 basis points. While SA’s moribund economy could do with the potential stimulatory effects of a rate cut, the threat of the downgrades to junk constrained the Reserve Bank. Downgrades negatively affect the rand, which has a direct impact on inflation, and the bond market, affecting the price government pays to borrow money