12 Dec.
Absa: SA Morning Sheet.
This is a daily economic comment …
The sheets can be downloaded daily from Absa Economic Research
An extract from today’s sheet is provided as an example:
It is a quieter week on the South African data calendar with consumer and producer prices for November the key focus.
In a low survey month we look for food and fuel to contribute the most to the 0.4% m/m rise we are forecasting for November headline CPI (released on Wednesday). A 23 cents/litre petrol price increase during the month should push the transport category 0.9% m/m higher while continued price pressures in food should result in an increase of around 1.1% m/m. Together, this would leave CPI food at 11.1% y/y and CPI transport at 7.4% y/y. Aside from food and transport, we are looking for a slight uptick in core inflation to 4.0% y/y after tracking sideways at 3.8% for the past three months. Our work on underlying inflation suggests that it is just a matter of time before core inflation starts to pick up and considering robust consumer metrics as of late, this should not come as a surprise.
Thursday’s release of producer prices for November should remain generally in line with its October result (10.5% y/y versus 10.6% y/y previously). Consensus expects 10.6% y/y. The continued price pressures at the factory gate stem from commodity prices and a weaker currency. We will continue to keep a close eye on PPI food inflation as this has a major impact to the CPI food trajectory.
Markets: The EU summit has had little impact on G10 or EM FX, while European and US equities pushed higher on Friday. The deal reached at the summit has increased the size of crisis-fighting measures and improved the prospects for joint liability of national debts longer term (Some positive news from the EU Summit, 9 December 2011). EU countries pledged an additional EUR200bn to the IMF and the European Stability Mechanism will come into effect in July 2012 (rather than 2013). This could raise EUR550-700bn and backstop most of Italy and Spain’s financing needs over the next 18-24 months. A new fiscal “compact” will also be enshrined in national law. But the UK’s veto of treaty changes, the absence of unlimited ECB support for bond markets and more concrete steps towards joint liability (in the form of eurobonds) suggest global risk appetite will remain muted this week. So while the summit moved closer to a workable long-term solution, we judge this to be a necessary but insufficient condition for stabilising yields.
As compared market open last Monday, Euro-area spreads are mixed at the beginning of this week, with Portugal (-100bp to 1085 over Bunds) and Italy (-34bp to +421bp) having narrowed, whilst Ireland (spread of +606bp) and Spain (+360bp) are roughly flat on the week and EURUSD has traded within a fairly narrow range during last week’s summit excitement.
For South Africa it is inflation week before Friday’s public holiday pretty much signals the end of 2011 for the rand local market. With Wednesday’s CPI print expected to jump above the 6% target (we are expecting 63% with a Bloomberg analyst spread of 6.1%-6.4%), and PPI inflation also to remain solidly in the double-digit territory, we would expect the money markets to move through the week with a weak bias. …
The sheets can be downloaded daily from Absa Economic Research
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