Nedbank Weekly Economic Monitor

31 Jan.

Nedbank Weekly Economic Monitor: Review of 23 to 27 and preview of 30 January to 3 February 2012.

• Global equity markets were generally firmer.
• The FOMC has indicated that it is likely to maintain its accommodative monetary policy stance until well into 2014.
• US economic growth picked up in the fourth quarter, boosted mainly by an inventory accumulation.
• The rand improved further for the third consecutive week.
• Producer inflation for December come out lower than expected eased, easing to 9,8% from 10,1% in November.

Domestic

The rand improved further for the third consecutive week, supported by better risk sentiment and higher precious metal prices. The unit closed at R7,74, R10,23, and R12,19 against the US dollar, the euro and the British pound respectively on Friday, up from R7,94, R10,27 and R12,37 a week earlier. Bonds strengthened along with the firmer rand, with yields on the benchmark R157 2015 and R186 2025 falling to 6,44% and 8,13% from 6,70% and 8,34%, while those on the 3-, 5- and 10-year BESA actuaries dropped to 6,17%, 6,89% and 7,82% from 6,42%, 7,14% and 8,03% respectively.

Money market rates remained generally steady, with the 3- and 6-month JIBAR unchanged at 5,30% and 5,79% respectively, while the 9- and 12-month JIBAR increased slightly to 5,98% and 6,16% from 5,97% and 6,15%.

Local equities tracked global markets over the week. After reaching a new record level of 33 940,5 on Tuesday, the FTSE-JSE all-share index retreated on profit taking and some softer economic data from major countries. However, the overall equity index still ended the week slightly higher on Friday compared with the previous week’s close, gaining 0,6% to close at 33 895,0. Industrials and basic materials rose by 0,4% and 1,7% to end at 35 401,0 and 30 733,3 respectively, while financials, in contrast, lost 0,2% to close at 23 615,5.

Producer inflation eased in December, falling to 9,8% y-o-y from 10,1% in the previous month as prices were steady over the month. On a month-on-month basis, prices were mainly driven by food prices, which remained elevated at both the agricultural and manufacturing levels. The 2,7% m-o-m (8% y-o-y) rise of food prices at the agricultural level was mainly attributed to a 5,4% (up by 36,3% y-o-y) increase in the prices of grain and a 2,7% increase in the prices of fruits and nuts (down by 16% y-o-y). Prices of food at the manufacturing level were driven mainly by meat and meat products as well as fats and oils, which rose by 1% mo- m (up 22,9% y-o-y) and 1,6% (up 0,6% y-o-y) respectively. Prices of basic metals have also increased sharply over the month, rising by 5,3% (up by 4,9% y-o-y) , reflecting higher prices of basic iron and steel. In contrast, inflation in the mining and quarrying category eased by 3,7% over the month, containing the annual increase to 10,1% from 14,4% in November. The monthly decline was mainly attributed to lower coal prices (down by 7,9% m-o-m) as well as crude oil and metal ores, which fell by 1% and 1,6% respectively. Over the year, coal prices were down by 0,4% in December following a 10,2% rise in November, while metal ore prices remained relatively high at 13,5%. …

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