The Week Ahead of 13 November 2018. Trump's wings clipped-to an extent.

As anticipated in last week's note, the US midterm elections delivered a split

Congress, with the Republicans losing control to the Democrats in the House of

Representatives, though surprisingly the Republicans managed to increase their

representation in the Senate. This probably means that the Fed's policy of

gradual tightening will remain in place, as President Trump's latitude to

interfere with the Fed has been compromised with this result. Trade policy,

however, remains Trump's executive remit, and global trade will probably

continue to weaken in response. Emerging markets will probably have to keep on

hiking as a result.

A divided congress may well result in a return to legislative logjams, and

with that a reduction in the likelihood of further fiscal stimulus such as tax

cuts. US economic growth is likely to decline in the absence of further fiscal

stimulus and there are even some observers who are talking of a recession in

the US by 2020.

One way to avoid such a downturn in the economy would be to resuscitate

Trump's plan to greatly increase infrastructure spending. While there is broad

agreement between the two political parties on the need for infrastructure

spending, the parties disagree on how a big infrastructure spend should be

financed. The American Society of Civil Engineers calculated as far back as

2014 that $4.2 trillion would be needed to be spent on American infrastructure

just to bring it up to modern-day standards. This type of money cannot just be

rustled up by big government in the US; it would need to be financed largely

by the private sector which would, in return, seek all sorts of tax incentives

for doing so. The last time such an ambitious plan, with bipartisan support in

congress, came to fruition in the US was in the 1950s and 1960s with the

financing of the interstate highways.

The US Federal Reserve kept rates steady at its Nov meeting last week. Expect

a 25 basis point hike at the Dec meeting and a further four hikes in 2019.

After peaking at over $85/bbl on Oct 3, the Brent Crude Oil price has

plummeted to around $70/bbl. US crude prices, as proxied by West Texas

Intermediate (WTI) have experienced an even steeper decline and are now in

bear market territory. WTI has fallen for ten straight days in a row-the

longest losing streak since July 1984, according to S&P Global Platts. Reasons

for the plunge include Saudi Arabia pumping crude at record levels, US

frackers greatly increasing production and Iran being let off the hook to a

limited extent regarding sanctions by the Trump administration. The US

recently surpassed Saudi Arabia and Russia as the world's largest oil

producer.

However, global crude demand remains strong and if Iran oil sanctions are made

tougher in future, that could help lift prices again. US frackers are pumping

at full capacity and are running out of pipelines, so they have limited if any

ability to deal with any unexpected increases in demand.

The JSE All Share Index (Alsi) fell almost 1 000 points during last week,

ending on Fri 9 Nov at 53 295. Richemont came out with reasonable results,

although they were below analyst expectations and closed sharply lower.

Naspers, the largest stock by market capitalization on the JSE, ended the week

lower then where it started.

Companies reporting this week ;

12 November 2018

Vodacom - Interim

Economic related events this week ;

14 November 2018

SA Retail Sales - September

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