Nedbank Weekly Economic Monitor

21 May.

Nedbank Weekly Economic Monitor: Review of 7 to 11 May and preview of 21 to 25 May 2012.

• The rand weakened further last week on continued risk aversion.
• Retail sales were slightly better than expected at 6,8% y-o-y in March, but total sales declined by 1,2% in the first quarter of the year.
• Global equity markets plummeted last week on concerns about the Eurozone debt crisis.
• The focus at the G8 meeting was on the Eurozone debt crisis.
• Both the US Federal Reserve and the Bank of England’s have indicated that they are ready to offer more liquidity should the need arise.
• The Eurozone economy stagnated in the first quarter.
• The Japanese economy recovered further in the first quarter.

Domestic

The rand lost further ground last week as continued worries about political problems in Europe and concerns about the health of Spanish banks, following news that Moody’s downgraded the ratings of 16 Spanish banks, heightened risk aversion. The local unit closed the week at R8,34 against the stronger US dollar, which benefited from its safehaven status, down by just under about 3% from the previous week’s close of R8,10, and fell to R10,66 and R13,18 against the euro and the British pound respectively from R10,45 and R13,01.

Bonds strengthened despite the weaker rand. Yields on the benchmark R186 2025 and the R157 2015 fell to 6,38% and 8,29% respectively on Friday from 6,44% and 8,31% at the previous week’s close, while those on the 3-, 5- and 12-year BESA actuaries eased to 6,06%, 6,85% and 7,84% from 6,08%, 6,90% and 7,88%.

In the money market, the 3-month JIBAR was unchanged at 5,53%, while the 6-, 9- and 12-month JIBAR fell to 5,80%, 5,93% and 6,12% from 5,81%, 5,96% and 6,17% respectively.

Local equities were dragged down by lower global markets, which were hurt by worries about global growth. The FTSE-JSE all-share index closed at 33 148,4 on Friday, down by 2,6%, with financials, industrials and basic materials falling by 3,4%, 1,1% and 4,3% respectively to end at 24 611,5, 37 850,9 and 25 822,3.

Retail sales were slightly better than expected in March, increasing by seasonally adjusted 2,1% m-o-m. However, the decline in January and February caused sales for the first quarter to drop by 1,2%, the first quarterly contraction since the first quarter of 2009. During the quarter, growth in total sales slowed to 5,9% y-o-y from 7,9% in the last quarter of 2011. Over the period, all the major categories recorded expansion, with stronger rises coming from general dealers (up by 5,9%), household furniture and appliances (up by 8,6%) and other (up by 8,3%). Retail sales increased by 6,8% y-o-y in March, with the growth rate almost unchanged from a downwardly revised 6,7% in February.

Consumer inflation for April will be released this week. Food and fuel prices are likely to have continued to be the main driver of price increases over the month. We forecast prices to have increased by 0,4% m-o-m, with the growth rate slowing from 1,1% in March and 0,6% in both January and February. On an annual basis, however, inflation is expected to have increased to 6,2% from 6,0% in March, mainly due to the base effect. The South African Reserve Bank’s Monetary Policy Committee (MPC) will start its three-day meeting on Tuesday, which will be closed by an interest rate decision announcement on Thursday.

Recent indicators suggest that household demand lost some momentum during the first quarter of this year, while production numbers for the same period were even weaker. With economic activity expected to remain subdued for the remainder of the year and global conditions also a concern, we expect the committee to leave interest rates unchanged at 5,5%. …

See the full Economic Monitor