BLUE QUADRANT CAPITAL MANAGEMENT BLOG
We recently put together this article on the digital currency market for Seeking Alpha. Click on the link below to read the full piece. https://seekingalpha.com/article/4099843-growing-digital-currency-market-mean-investors
- South Africa officially entered a recession in Q1 2017 and outlook remains poor.
- Weak domestic demand and stronger Rand have helped contain inflation.
- Improved inflation outlook opens the door for rate cuts in H2 2017.
- This will support South African equities and bonds, although further appreciation in the Rand from current levels does not appear sustainable.
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Corporate bond yields in the US remain near or close to historical lows (or at least since the 1950s), with the average yield on AAA rated debt trading at roughly 4%. Although we focus on US corporate yields and data in this article, the same trend is reflected across all major developed economies. Even in many emerging-market economies, despite the correction in late 2015 / early 2016, general corporate yields still remain well below the levels that prevailed prior to the Global Financial Crisis (GFC) in 2008.
One of the conundrums of the current economic expansion in the United States has been the tepid wage growth evident in the recovery thus far. Although wage growth has picked up somewhat over the past year, it remains in a band between 2.5% and 3% and below the levels of wage growth seen prior to the last recession in 2007. This conundrum is all the more perplexing, given that the official unemployment rate has continued to decline to a new cycle low of 4.4%.
The South African Rand (ZAR) is one of the most liquid emerging market currencies in the world, but is arguably also extremely volatile, particularly in recent years. This volatility is underpinned by the sentiment-driven ebb and flow of international capital flows and tends to make forecasting the currency a notorious challenge. As such, some investors may even suggest that it is impossible or hopeless task to try and forecast the currency
US oil production has recovered notably since bottoming in September 2016 at an average daily production rate of 8.5mn barrels per day (bpd). US oil production (excluding Natural Gas Liquids or NGLs) is now averaging around 9mn bpd, although still below its cyclical peak recorded in early 2015 at around 9.5mn bpd. Nevertheless, the rapid recovery in output in just six months coupled with the sharper rebound in the oil rig count (Baker Hughes data) as illustrated below, suggests that US oil production will continue to climb throughout 2017 and may eventually exceed its former cyclical production peak of 9.5mn bpd.
According to the latest quarterly report on Household Debt and Credit compiled by the New York Federal Reserve, US Household debt increased at a fairly robust pace in the final quarter of 2016, rising by 1.8% q/q or USD 226bn to USD 12.58trn. Despite the sharp increase in 2016, the total amount of household debt outstanding still remains some 0.8% below the prior cyclical peak of USD 12.68trn registered in Q3 2008. As such, growth in overall GDP and nominal disposable income has easily outstripped the growth in overall household indebtedness. When coupled with still very low financing rates, this has ensured that the overall household financial obligations ratio of household debt service payments as % of Disposable Personal Income remains at or near a multi-decade low.