Nedbank Weekly Economic Monitor

23 Aug.

Nedbank Weekly Economic Monitor: Review of 15 to 19 and preview of 22 to 26 August 2011.

• Global equities fell for the fourth consecutive week as global growth concerns deepened; local markets took their cue from their global counterparts.
• The rand fell further last week, although slightly.
• Retail sales rebounded in June, although overall growth remains weak.
• Economic data released in the US, eurozone and the UK continued to point towards sluggish economic growth, weak labour markets and commodity-price induced inflation pressures.

Domestic

The rand remained under pressure last week on increased worries about global recovery and eurozone debt problems which heightened risk aversion. The unit ended at R7,18, R10,34 and R11,83 against the US dollar, the euro and the British pound respectively on Friday, down from R7,16, R10,12 and R11,67 respectively at the previous week’s close.

However, foreigners remained attracted to local bonds following some profit taking in the previous week, while increased expectations that local interest rates are likely to remain low for longer than expected also boosted sentiment in the capital market. Up to Thursday, a net of R7,5 billion worth of bonds were bought following purchases of R3,5 billion in the whole of the previous week. Yields on the benchmark R157 2015 and R186 2025 fell to 6,63% and 7,89% at the end of the week from 7,00% and 8,38% a week earlier, while those on the 3-, 5- and 10-year BESA actuaries declined to 6,21%, 6,97% and 7,66% respectively from 6,65%, 7,34% and 8,13%.

Money market rates were generally steady, with the 3-, 6- and 12-month JIBAR closing at 5,51%, 5,74% and 6,01% respectively, down slightly from 5,53%, 5,75% and 6,03%, while the 9-month JIBAR was unchanged at 5,90%.

Local equities were dragged down by weaker global markets on increased worries about the global recovery. The FTSE-JSE all share index was down by 1,5% over the week, ending at 29 378,7 on Friday, with basic materials, industrials and financials falling by 3,1%, 1,2% and 0,2% respectively to close at 26 564,0, 31 079,4 and 20 534,4.

Annual growth in retail sales rebounded to 2,2% in June, up from an upwardly revised 0,2% (previously 0,0%) in the previous month, mainly supported by ‘pharmaceutical and medical goods, cosmetics and toiletries’ and ‘household furniture, appliances and equipment’, which rose by 9,2% y-o-y and 6,2% y-o-y respectively. Sales of textiles, clothing, footwear and leather goods, which increased by 2,9% y-o-y after a 2,5% drop in May, also contributed. Sales by ‘general dealers’ slowed to their weakest level since April 2010, down to 3,4% y-o-y in June from 5,5% in May while that of the other remaining categories declined further, albeit at a slower rate. On a seasonally adjusted basis, total sales rebounded by 2% m-o-m following a 4,8% drop in May. During the second quarter, growth in retail sales was only 0,1% q-o-q, its weakest since the final quarter of 2009, down from 1,4% in the first quarter. On an unadjusted basis, growth slowed to 4,1% y-o-y in the second quarter from 5,7% in the previous quarter. Over the quarter, sales were dragged down mainly by the ‘hardware, paint & glass’ category, which fell by 1,5% y-o-y following a 13,3% rise in the first quarter. Sales in all other categories, except ‘specialised food, beverages and tobacco’, remained positive during the quarter, although the year on year growth rates in some categories moderated. …

See the full monitor at Weekly Economic Monitor