Nedbank Weekly Economic Monitor

30 May.

Nedbank Weekly Economic Monitor: Review of 16 to 20 May and preview of 30 May to 3 June 2011.

• The rand fell sharply in the middle of the week on rumours of electricity blackout during the winter season, but recovered some ground after Eskom denied such speculations, while firmer precious metal prices also supported the local unit.
• Producer inflation for April came out less that expected, easing to 6,6% y-o-y from 7,3% in March.
• At the May Monetary Policy Review, the South African Reserve Bank Governor emphasised that the MPC would be on the lookout for second-round effects of inflation.
• Global equities ended the week lower, due to weaker-than-expected economic data and increased risk of sovereign default in Greece.
• Gdp in the UK expanded by 0,5% q-o-q in the first quarter of 2011, unchanged from the final quarter of last year.

Comment

The rand fell to R7,03 against the US dollar on Wednesday, its lowest closing since the middle of April, on continued worries about European debt problems and rumours that Eskom will implement load-shedding this winter. However, the power utility denied such speculation, which, combined with firmer precious metal prices helped the rand to consolidate some ground, although it still closed slightly lower on Friday compared with the previous week. The unit ended at R6,92 against the US dollar, down slightly from R6,91 a week earlier, and fell to R9,91 and R11,43 against the euro and the British pound respectively from R9,78 and R11,21.

Bonds strengthened further as better than expected inflation data and some moderation in the oil price reduced chances of an earlier interest rate hike. The yields on the benchmark R157 2015 and the R186 2025 fell to 7,47% and 8,46% on Friday from to 7,55% and 8,47% at the previous week’s close, while the 3-, 5- and 10-year BESA actuaries dropped to 6,94%, 7,60% and 8,27% from 7,04%, 7,73% and 8,30% respectively.

In the money market, the 3- and 6-month JIBAR remained steady at 5,50% and 5,81%, while the 9- and 12-month JIBAR edged down to 6,06% and 6,30% from 6,09% and 6,32%.

Local equities were boosted by a strong rebound in resource stocks on the back of firmer commodity prices. The FTSE-JSE all share index ended at 32 384,4, up by 1,9% from the previous week’s close, with basic materials up by 2,8% to close at 30 864,7. Financials were also firm at 21 848,9, up by 1,8%, while industrials gained a marginal 0,9% to end at 33 144,6.

At the Monetary Policy Forum (MPF) held on 24 May the focus was on rising inflationary pressures against the backdrop of weak underlying economic growth. The Monetary Policy Committee (MPC) indicated that the global economy continued to improve since the last Monetary Policy Review (MPR), but the pattern of international growth has remained uneven, with growth in the industrialised economies outpaced by that in developed economies. Despite recent reasonable economic performance rising commodity prices, the European sovereign debt crisis and the tragic events in Japan pose a risk to the sustainability of the recovery. The local recovery also remains fragile. However, the SARB projects real gdp growth of 3,6% in 2011 and 3,9% in 2012, slightly higher than the 3,2% and 3,5% expected at the time of the previous MPR.

See the full monitor at Weekly Economic Monitor