Nedbank Weekly Economic Monitor

05 Jul.

Nedbank Weekly Economic Monitor: Review of 27 June to 1 July and preview of 4 to 8 July 2011.

• Improved risk appetite following news that the Greek government had voted for an austerity plan supported the rand last week.
• Growth in private sector credit extension eased to 5,2% y-o-y in May from 6,2% in April, dragged down mainly by a contraction in corporate credit.
• Producer prices rose slightly more than market expectations in May, increasing to 6,9% y-o-y from 6,6% y-o-y in April.
• The deficit narrowed to R1,0 billion in May from R2,4 billion in April in line with expectations
• Motor vehicle sales continued to recover in June.

Comment

The rand closed firmer on Friday on the back of improved risk appetite, which was underpinned by news during the week that the Greek government had voted for an austerity plan, which reduces the chances of the country defaulting in the short term. The local unit ended at R6,72, R9,64 and R10,81 against the US dollar, the euro and the British pound respectively, up from R6,89, R9,72 and R10,99 at the end of the previous week.

Bonds, however, weakened over the week, with the yields on the benchmark R157 2015 and the R186 2025 closing at 7,52% and 8,59%, rising from 7,42% and 8,53% at the previous week’s close, while the 3-, 5- and 10-year BESA actuaries increased to 7,10%, 7,79% and 8,40% from 7,02%, 7,69% and 8,32% respectively.

Money market rates were mixed on Friday. The 3-month JIBAR was unchanged at 5,50%, the 6-month JIBAR rose to 5,78% from 5,72% at the previous week’s close, while the 9- and 12-month JIBAR fell to 6,08% and 6,33% respectively from 6,13% and 6,39%.

Local equities were boosted by stronger global markets. The FTSE-JSE all share index gained 4,1% over the week, ending at 31 925,5 on Friday, with industrials, financials and basic materials up by 4,1%, 3,2% and 4,4% respectively to close at 33 147,0, 21 701,3 and 29 932,9.

Annual growth in broad money supply rose slightly to 6,1% in May from 6,0% in the previous month, on the back of increases in net foreign assets, which rose by R17,7 billion, a R4,5 billion increase in claims on the government sector, and a R3,7 billion rise in net other assets and liabilities, which more than offset the impact of the R8,7 billion drop in net claims on the private sector. Growth in private sector credit extension eased to 5,2% y-o-y from 6,2% in April, dragged down mainly by a contraction in corporate credit, which fell by 0,8% mo- m, while household credit rose by 0,5% during the month. On a y-o-y basis growth in household credit remained unchanged at 6,9%, while growth in corporate demand eased to 3,7% from 4,9% in April. Demand for mortgages remains subdued, with y-o-y growth in advances remaining below 5% despite the fact that the prime lending rate has been below 10% for the past three quarters. This partly reflects the impact of high consumer indebtedness on the real estate market, making it difficult for banks to extend credit and households cautious of big credit purchases. Instalment sales and leasing finance remained relatively robust in May, increasing by 0,4% m-o-m and 4,6% y-o-y, reflecting mainly rising sales in the vehicle market. This category was up by 5,3% in the three months to May over the previous three months. The ‘other loans and advances’ category was down by 1,1% m-o-m, with the drop following a 1,2% rise in the previous month. This category rose by 2,5% in the three months period to May from 14,8% in April. …

See the full monitor at Weekly Economic Monitor