Macro Pulse Episode 22

Hello and welcome to Macro Pulse. We are in the last stretch of 2025 and overall, as its as outperform to the upside. But as we look into 2026 the question is how much longer can these assets perform well and what are the risks on the horizon that could derail this performance? The biggest macro shift of the last few months has been the weakening of the labour market.

So, we saw in the beginning of September the non-farm payrolls print came out very weak. And then in September during the FOMC meeting we saw that fit. Jay Powell, cut interest rates by 25 basis points. He characterized that as a risk management cut and emphasized that the risks has move away from higher inflation and shifted more towards a slowing labour market.

Apart from the slowing labour numbers that we saw, other economic data has actually been fairly robust and fairly strong. So, for the second quarter of 2025, US GDP has now been revised from 3.3% to 3.8%. So very strong. The personal consumption component has been revised up as well, from 1.6 to 2.5%. And overall retail sales has been feeling robust.

Also, the most recent PMIs, which is an indication of economic activity in the future, is above 50, which means that we still see and expect an expansion to take place in the US economy. So, on the one hand, you have weak labour market numbers, but still a decent and robust, economic growth. We also had some inflation numbers, the core PC number, which is the favourite inflation measure that the fed use, came out at about 2.9%, which is in line with expectations, but still poses an upside risk over coming months with inflation sticky, labour markets weak.

The fed more focus on the labour side. We think that the biggest macro risk in the near term is that the market is pricing in rate cuts all the way down to 3% by the end of next year. And due to this dynamic, maybe if the economy remains robust and inflation remains fairly sticky, the market may have to price out some of these cuts and this could be detrimental to risky assets.

Now this is not our base case a central case, but it’s a growing risk worth monitoring. The other second big risk I think so in the near term is a potential escalation, and intention and a potential conflict still between Russia and NATO. We had several incidents over the last few weeks of Russian military planes and drones entering NATO airspace.

And if we continue to see events like these, we could still see some sort of an event take place that could be, bad for the oil price, meaning that the oil price could rise and spike higher, which would be bad for risk assets. So those are two risks that we monitor. But the most relevant immediate risk is that of the US government shutdown.

So, since the 1st of October, the US government has been shut down as the government, the Republicans and Democrats couldn’t agree on a spending budget for the new fiscal year, which means there’s no appropriations for certain government functions. And therefore, in the immediate near term, government has been shut until a new agreement could be reached, which means that more than 2 million government workers either is on unpaid leave or, if they’re essential workers like military force or air control, operators.

They are working, but on an unpaid basis. So, the immediate impact is a potential reduction in government spending as well as household consumption, which could weigh on growth. Now, in 2018, the government was shut down for 35 days during Trump’s first term. And during that period, the economic impact was estimated to be 0.3% of GDP. Now, shutdowns are not uncommon.

We’ve had about 4 or 10 of those in the last 40 years, but they typically last only a few days less than a week. However, of the last four shutdowns, three of them has lasted more than two weeks. And so, we have good reason to believe that this shutdown could potentially also be a few weeks. And another risk of this brings on to the horizon is the fact that we may not get some of the very important economic indicators that we usually rely on.

For instance, during the first week of the month, on the first Friday, we get the non-farm payrolls report, which is key in establishing, or gauging the health of the labour market. And then during the middle of the month, we get, the CPI report. These two prints may therefore be delayed and not be, delivered in time, which will leave the market and the fed, I guess, somewhat misguided for a while.

In the short term, we will have to rely on other proxies. One good proxy for the labour market is the ADP report, which is provided by a private company. It differs from the North payrolls report in that it excludes government workers. But if you take a longer-term trend, a longer-term time frame, it correlates well, with the non-farm payrolls report specifically, once the revisions have been taken into consideration.

Now, looking at the last report, the one that we got this week on Wednesday, it showed that for the month of September, jobs during the month of September dropped by about 32,000. While the market was expecting 51,000. So, a read through to this, to the labour market means that the labour market has potentially continued to weaken over the last month.

Furthermore, this government shutdown means heightened uncertainty. And so, we see this also expressed in some of the asset prices. The gold price is now close to 3900 on its way to 4000. In this uncertain environment, we saw bond yields also falling in the US and also the US dollar coming on a bit more pressure on the local front.

We had some positive news on the economic data front as well as, some of the headlines. First of all, the South African Reserve Bank’s leading economic indicator, rose to its highest level this year. Seven out of the ten components, improved. We also had the, the b r consumer confidence data point, drops a little bit from -10 to -13.

Which kind of affirms our view that although the consumer is in a decent position, it’s their confidence, to spend that is lacking. We also had, some strong private sector credit numbers, particularly supported by, the corporate sector. We also had the PMIs, PMIs for manufacturing, coming in at 52. So, a jump from below 50 to 52, which again signals some expansion.

Domestic demand is rising. New orders components are doing better. Then on the headline front, we had news that the US and Africa is working on a trade agreement. The US has made some proposals. That those proposals are now being presented to government in South Africa, by the trade, delegation that went to the US.

And we should hear in the next week or two whether we as Africa has accepted those proposals, and this could potentially lead to a new trade deal with the US, hopefully. Encompassing I tried the tariff of less than 30%. The white House has also expressed their, preference to allow the ago a trade agreement to last for another one year.

That agreement was supposed to expire now, but given that their, acceptance of the view to allow it for another one year, this will be beneficial for more than 30 African countries that is currently part of this agreement. We there’s beneficial trade between Africa and the US. We also had good news on the on the Eskom front in that Eskom has provided, its first profit in about eight years, a 60 billion profit.

Now, that profit largely came also as a result of less cost in, in running open gas turbine cycles. And also, the fact that maintenance has improved leading to less breakdowns. There are still some worry points in that. The municipal arrears has now increased to about 100 billion, which is an increase of about 27% from last year.

And finally, South Africa has now ticked, 22 of the boxes it was required to come off the Financial Action Task Force greatest meaning that Africa maybe sometime in October. I think the date is 24th of October. There could be official announcement. That’s what Africa has finally been taken off. The greatest of the. It’s been for a few years.

Again, another positive headline. So, we are seeing that some of the reforms, are shaping up very slowly and will continue to support the economy over the years to come.

That’s all for this week. Thank you for watching.