- The STeFI Index returned 59bps in June, while 3-month JIBAR ended the month 9.2 basis points lower to 7.025%.

- JIBAR is ticking lower in line with forward-rate agreements (FRAs) which are an industry standard for repo rate expectations in the market. The FRA market is pricing certainty of at least one repo rate cut in the next 12 months and over 50% probability of a second rate cut. This is a major shift from the rate hike expectations priced in throughout 2018.

- First quarter GDP contracted by 3.5% q/q which was far worse than consensus expectations of 1.6% q/q contraction. This brings into question the ability for the economy to achieve growth above 1% for the year, unless we see a major rebound in momentum. From a nominal growth perspective, the economy increased by 4.1% y/y (below National Treasuryfs projection of 7.0%) which would have an impact on the budget and current account deficits.

- Consumer inflation increased to 4.5% y/y in May from 4.4% y/y in April which was slightly higher than consensus expectations of 4.4% y/y. Core inflation ticked slightly lower to 4.1% y/y (from 4.2% y/y in April). The slight upside surprise came from higher food inflation (2.8% y/y in May from 2.3% y/y in April) and fuel prices which increased 3.3% m/m (11.6% y/y) in May.

- Retail sales increased 2.4% y/y in April from 0.1% y/y in March which was above consensus expectations of 1.2% y/y. When also considering manufacturing output and electricity production, this is a good start to the second quarter of the year in terms of growth, particularly when considering the GDP slump seen in the first quarter.

- Given the GDP slump, Eskom debacle, stagnant employment and continued contradictory policy rhetoric coming from the ruling party, all eyes were on President Ramaphosa to deliver a State of the Nation Address (SONA) that would hopefully starve off another year of lacklustre growth. This was a missed opportunity with the SONA light on details on Eskom (even though The Presidency promised more details at the SONA) and repeated previous rhetoric of igniting local manufacturing to address the growth issue. The speech was light on new policy initiatives but aimed to focus on implementation with no indication on how the government plans to do things differently.

- June was surprisingly a busy month in terms of credit issuance. We saw the return of issuers that have not participated in the capital markets for a long time such as Telkom, Exxaro and Super Group. This can be an indication of a peaking credit cycle when names that have not issued in the capital markets before or have shied away are able to clear auctions at high bid-to-cover ratios. Other issuers that come to market are BidvestCo, Standard Bank and Growthpoint.

- JIBAR setting is a contentious issue and therefore, although we continue being tactical in receiving fixed rates, where JIBAR sets is an important element in determining total return for comparative floating-rate notes and we monitor developments closely.

- The STeFI Composite Index returned 57bps in March, while 3-month JIBAR ended the month again unchanged at 7.15%.

- The key events for the month were backloaded, being the South African Reserve Bank (SARB) interest rate decision and the highly anticipated Moody's Credit Review on the last day of the month. In line with what happened in October 2018, Moody's did not release a Credit Review on the 29 March deadline, but instead released a Credit Opinion on South Africa the following week, leaving South Africa's foreign and local currency credit ratings unchanged at Baa3 with a Stable outlook. Despite developments following the October review - Eskom financial challenges, constrained Fiscal budget, land reform uncertainties - Moody's still assesses South African fiscal strength as Moderate (+) according to its complex rating methodology.

- The Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.75% in a unanimous vote. Throughout 2018, including the more dovish tilted January 2019 meeting, the MPC highlighted that risks to the inflation trajectory remained to the upside, but at the March meeting the tone changed to now note that risks to the inflation outlook are balanced - this is an important shift for policy in our opinion.

- February consumer inflation at 4.1% y/y was in line with consensus forecasts (from January's 4% y/y), continuing the "four-handle" trend. Core inflation remained unchanged at 4.4% y/y. The main drivers were lower food inflation (2.3% y/y) across the food basket category and limited evidence of Rand weakness passthrough in Rand-sensitive categories. The BER Inflation Expectations Survey for the first quarter of 2019 declined across all social groups from 5.4% to 4.8% for 2019 and for 2020 from 5.4% to 5.2%.

- Despite declining inflation expectations, the SARB's Quarterly Projection Model (QPM) expects one interest rate hike of 25bps by the end of 2019. Another major change in the modelling assumptions is the reduction in GDP growth, which acts to widen the output gap. Monetary Policy must contend with a delicate balancing act where the fixation with anchoring inflation expectations exactly at 4.5% (instead of contentment with lowering inflation expectations) could lead the MPC to retain interest rates (and even consider a hike) when some suggest they should be stimulating the economy with lower interest rates. But this analysis is potentially short-lived as the make-up (and decision-making) of the MPC will change by the end of this year given the end of contracts for two members, while a further two has recently departed.

- March was a busy month in terms of credit issuance. Apart from the regular big bank issuers (FirstRand and Nedbank) and listed property counters (Investec Property Fund and Redefine), we saw State-Owned Companies (SOC's) - IDC, Landbank and DBSA - issuing in the capital markets. Participation was not as robust as we have seen over recent quarters, but it does show that even in the face of corporate governance failures and financial weakness in some SOC's, the well run SOC's that have demonstrated consistency can still tap the capital markets reducing the financial burden to National Treasury.

- We look forward to the May National Elections where the outcome will set the tone for policy setting. Lack of economic growth remains the key impediment to the economy with the bar to change this very low and lies primarily in policy setting and implementation.