Nedbank Weekly Economic Monitor

16 May.

Nedbank Weekly Economic Monitor: Review of 9 to 13 May and preview of 16 to 20 May 2011.

• The rand was pressured by lower precious metal prices, risk aversion and a firmer US dollar.
• The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) left the repo rate unchanged at 5,5 %.
• Manufacturing production rose by 4,6 % y-o-y in March, while mining production declined by 1,4 %y-o-y.
• The dollar gained against the euro last week on continued concerns that Greece might default.
• US consumer inflation rose to its highest level in more than two years, increasing to 3,2 % y-o-y.
• The Eurozone economy grew by 0,8 % q-o-q in the first quarter of 2011, following growth of 0,3 % in the final quarter of 2010.

Comment

The rand was dragged down by lower precious metal prices, risk aversion over euro zone debt concerns and a firmer US dollar last week. The local unit breached the psychologically important R7 level on Friday against the US dollar, ending at R7,01, its lowest level since the middle of March and down from R6,69 at the end of the previous week. It also closed on the back foot against the euro and the British pound, falling to R9,82 and R11,35 respectively from R9,58 and R10,95.

Bonds weakened in line with the rand and the MPC’s hawkish statement, which increased the likelihood of an earlier interest rate hike. The yields on the benchmark R157 2015 and the R186 2025 rose to 7,72% and 8,67% at the end of the week from 7,58% and 8,59% a week earlier, while the 3-, 5- and 10-year BESA actuaries rose to 7,14%, 7,89% and 8,52% from 7,01%, 7,76% and 8,42% respectively.

Money market rates were higher, with the 3-month JIBAR unchanged at 5,50%, while the 6-, 9- and 12-month JIBAR rose to 5,80%, 6,03% and 6,31% respectively from 5,78%, 5,99% and 6,24%.

Earlier in the week, local equities were pressured by weaker global markets following a drop in commodity prices. However, the FTSE-JSE all share index recovered some ground at the end of the week, closing at 31 959,9 on Friday, up by 0,3% from the previous week’s close, helped by industrial stocks, which rose by 1% to end at 32 918,0. In contrast, both financials and basic materials lost 0,3% to close at 21 398,1 and 30 367,2 respectively. Gold stocks were down by 0,2%, while platinum shares lost 2,4%.

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) left the repo rate unchanged at 5,5%, in line with market expectations, but indicated that rising inflationary pressures have increased the probability of a hike. …

See the full monitor at Weekly Economic Monitor