Nedbank Weekly Economic Monitor

14 Nov.

Nedbank Weekly Economic Monitor: Review of 7 to 11 and preview of 14 to 18 November 2011.

• Global equity markets closed the week mixed, with new economic reforms adopted by Italy’s senate contained worries about the eurozones debt problems.
• In line with expectations, the Reserve Bank’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 5,5%.
• Manufacturing output improved further in September, rising by 7,7% y-o-y from 5,9% in the previous month, while the weakness in mining production persisted during September, with total output falling 5,4% y-o-y.
• In the US, initial jobless claims fell to their lowest level in seven months, a sign that companies may be scaling back retrenchments.
• The UK’s producer inflation eased to 5,7% in October, down from 6,3% in September.

Domestic

During the week global markets were depressed by worries about eurozones debt problems, which were exacerbated by fears that Italy might also experience a debt crisis. Reports that Moody’s had revised its outlook for South Africa’s sovereign debt rating from stable to negative exerted downward pressure on the rand, with the local unit falling to R8,04 against the US dollar on Wednesday. However, sentiment improved towards the end of the week as new economic reforms adopted by Italy’s senate contained worries about the eurozones debt problems. The rand closed the week at R7,89 and R12,65 against the US dollar and the British pound respectively, almost unchanged from the previous week’s close of R7,90 and R12,64. The unit firmed to R10,83 from R10,89 against the euro.

In the capital market, bonds weakened over the week, with yields on the benchmark R157 2015 and R186 2025 ending at 6,59% and 8,35% on Friday, up from 6,44% and 8,28% a week earlier, while the 3-, 5- and 10-year BESA actuaries rose to 6,32%, 7,01% and 8,02% respectively from 6,14%, 6,88% and 7,92%.

Money market rates have increased, with the 6-, 9- and 12-month JIBAR closing at 5,65%, 5,76% and 5,83% respectively, up from 5,60%, 5,66% and 5,72%.

Local equities ended the week in positive territory. The FTSE-JSE all share index gained 1,1% to end at 32 261,7 on Friday, with financials, basic materials and industrials up by 1,3%, 1,7% and 0,4% respectively to close at 21 470,7, 29 659,0 and 33 961,7.

The Reserve Bank’s Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 5,5%. At the last meeting one of the MPC members had argued for a cut. Although the growth outlook has dimmed, with lower commodity prices and less favourable global prospects, the inflation outlook has also deteriorated modestly since the September MPC meeting. The Bank still projects inflation to breach the 6% level in the fourth quarter of this year, but now projects it to peak at 6,3% (previously 6,2%) in the first quarter of next year. CPI inflation is expected to remain outside the target band for longer, returning to below 6% only in the fourth quarter of 2012 (previously the second quarter). Inflation is projected to drop to 5,2% (previously 5,4%) in the fourth quarter of 2013. Core inflationary pressures are still restrained; with core inflation projected to peak at 5,2% in the first quarter of 2013. The Bank’s growth forecasts have been revised downwards. Gdp growth is projected at 3,0% (from 3,2% at the time of the September meeting) in 2011, 3,2% (from 3,6%) in 2012 and 4,2% (from 4,4%) in 2013. …

See the full monitor at Weekly Economic Monitor