Publications
Partners
SA
Rand bulls enjoyed the weakening dollar last week as the rand/dollar exchange rate managed to test the R14.50/$ level for the second time this month after opening the week at R15/$.With interest rates below zero for a third of the world’s government bonds, investors sought higher yielding deposits in emerging markets, pushing up the value of the rand.
Net capital outflows from emerging markets shrunk to $37bn last month, which is less than the $45bn from the previous month. Cash has been pulled from emerging markets in recent weeks as global woes threatened emerging-market asset prices, which are viewed as risky. As investors become more optimistic capital flows back to risky assets, which yield high returns. Capital inflows to emerging markets help developing nations to finance spending and trade deficits.
The JSE ended the week subdued as Chinese GDP figures, for 12 months up to end March, came perfectly in line with expectations at 6.7%. Investors are beginning to doubt the accuracy of the data as other indicators, including rail freight and trade from surrounding countries such as Japan, suggest a different outlook. The data shows a slight reigning in of growth from 6.8% last year.
Local data last week was not all that rosy, with consumer confidence and mining production disappointing expectations. But retail sales showed improvements. Gold production shrunk, however, it was higher than expected.
The price of gold took a dip last week as investors’ appetite for risk improved. The non-yielding, safe-haven metal was sold off as global equities rallied to their highest this year.
Core inflation data, coming out on Wednesday, is expected to show a yearly increase to 5.76% from 5.7%. Headline inflation should tick up to 7.2%t from 7%, while monthly inflation slows from 1.4% to 0.8%.
A highly influential factor for markets was the outcome of the meeting between major oil-exporting nations in Doha on Thursday last week.
Great Britain
The sterling pound was under pressure last week as a YouGov poll revealed that voters were split down the middle between the “remain” and “leave” Brexit camps. The referendum takes place on 23 June and the potential influence became very evident when the Bank of England (BoE) made mention of the referendum in its Monetary Policy Summary. The BoE is generally supposed to remain autonomous from political issues but the potential economic impact limits the likelihood of monetary policy changes until there is clarity. The Monetary Policy Committee voted unanimously to keep monetary policy unchanged.
Europe
The European Central Bank (ECB) is due to deliver its frequent press conference on Thursday. ECB President Mario Draghi will highlight economic factors that are influencing the monetary policy of the 19 eurozone states. Europe is battling stubbornly low inflation and slow growth. The interest rate has been set below zero, yielding savers and pensioners a loss on their investments.
USA
Atlanta Federal Reserve Bank president Dennis Lockhard said he sees between two and three interest rate hikes this year. The dollar weakened at the beginning of the year as investors priced less than an initially forecasted four interest rate hikes for 2016. Inflation data released on Thursday last week showed that inflation came in lower-than-expected. However, the dollar shrugged off sellers and ended the week firm.
Other important data to look forward to this week:
Tuesday
• EU ZEW Economic Sentiment
• US Building permits
Wednesday
• Great Britain Employment figures
• US Crude oil inventories
Thursday
• Great Britain Retail Sales
• US Philadelphia Fed Business Outlook and Unemployment Claims
Friday
• EU Manufacturing and Services PMI
*Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.
