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What’s happening in SA?
The beauty pageant between the emerging markets continues as global investors thoroughly analyse, selecting the fad that they believe will really take off.
The allure of high-yielding bonds attracts cash from overseas,but the risks involved in investing with emerging markets has put South Africa in a position where our economic indicators are being used to compare us to the likes of Brazil, Russia, India and China (Brics).
The liquidity of the South African market and our well-supported financial system makes us particularly popular. The rand is stronger, bond yields are coming down and the stock market is steady.
Local data hitting headlines this week starts off on Thursday with Producer Price Change, or PPI, which has steadily declined since its peak in February. Upward pressure on producer prices comes from food, beverage and tobacco products which might be a small indication of the effects the drought has had.
The South African Reserve Bank decided not to hike rates last week but the high repo rate (7%) has caused credit growth to slow to 6.6% for May. On Friday we anticipate the private sector credit growth for June. Credit is used by households to consume, thereby growing the economy.
During June, the rand/dollar exhange rate fluctuated between R15.75 and R14.25 to the dollar – and the upcoming June trade data might show another spike in exports. Trade data in May showed the highest trade surplus on record and many attribute this to the weak rand. Manufacturing has also been stronger on the back of the weak rand.
…as all eyes are on the Fed
Also coming up this week is the interest rate decision by the US Federal Reserve Bank. On Friday, the day after the rate decision, more figures will be released about the cost of employment and GDP growth rate.
The Fed, which initially anticipated to hike interest rates four times this year, hasn’t been able to pull the trigger once because of the February market slide and low oil prices. The inflation rate has been hovering around 1% since February after it spiked up to 1.4% in January.
The Fed is “targeting 2% in the medium-term outlook” in order to substantiate a 0.25% interest rate hike. However, with excess capacity in China, and low demand globally, the Fed has been unable to hike.
The current interest rate is sitting at 0.5%, with the Federal Open Market Committee (FOMC) “dot plot” now indicating a mean 1% interest rate by the end of the year – suggesting only two possible rate hikes. The market anticipates that the likelihood of an interest rate hike will be “live” at the FOMC’s September meeting.
Other important announcements this week:
Monday
- Germany Ifo Business Climate
Tuesday
- US new Home Sales
Wednesday
- Germany Gfk Consumer Confidence
- Great Britain GDP Growth Rate
- US Durable Goods Orders
Thursday
- Germany Unemployment and Inflation Rate
- Euro Area Business Confidence
Friday
- Great Britain Gfk Consumer Confidence
- Japan Inflation Rate and Interest Rate
- Euro Area GDP, Inflation and Unemployment rate
- SA M3 Money Supply
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.
