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On a monthly basis, SA retail sales took a dip in April, suggesting that the decision in March to increase the interest rate by 25 basis points had an effect on the consumer.
The South African Reserve Bank (SARB) hiked rates in an effort to curb inflation as prices heated above the 3% to 6% inflation rate target. Inflation cooled in April and May, but it warmed up again in June to 6.3%.
In an effort to gauge the effect that the high interest rate and inflation have on the consumer, economists will be looking at the retail figures for signs of weakness.
With the rand touching nine-and-a-half-month highs against the dollar last week at R13.20, some analysts are optimistic that import prices had dropped, providing relief to the constrained consumer in terms of buying power and slowdown in inflation.
A strengthening of the rand against the dollar, from R17.78 to R13.20, means that the buying power of local currency has increased by close to 35% since January.
Market participants will be watching the retail sector very closely on Wednesday for any buy or sell signals on the back of the data.
Looking beyond SA, Tuesday reveals inflation data from both US and from the UK.
US inflation has been steady and any uptick would indicate a heightened potential for a rate hike by year-end. Meanwhile, inflation data from the UK is the first of such data to be released post-Brexit and should reveal the initial shock waves on demand.
On Wednesday, the US Federal Open Market Committee (FOMC) meeting minutes are to be released. The minutes are a detailed record of the FOMC’s most recent meeting, providing in-depth insights into the economic and financial conditions that influence their vote on where to set interest rates.
Germany’s ZEW Economic Sentiment figure is also due on Tuesday. This is a leading indicator of economic health and changes in sentiment can be an early signal of future economic activity. The survey of about 275 German institutional investors and analysts asks respondents to rate the relative six-month economic outlook for Germany and could highlight any potential weaknesses.
The indicator dropped from 19.2 to -6.8 in July (0 indicates neutral sentiment) – a sharp drop since Brexit.
Other important economic announcements due this week include:
Monday
• JP GDP Growth Rate
Wednesday
• GB Unemployment
Thursday
• JP Balance of Trade
• EA Inflation
Friday
• DE PPI
• GB Public Sector Borrowing and CBI Industrial Trends Orders
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.
