Compiled by Nigel Rendell,
senior emerging markets strategist
RBC Capital Markets
Tel: + 44 20 7029 7403
Once again it has been a quiet week as the markets await the South African Reserve Bank’s monetary policy meeting at the end of the month.
The markets are hoping that the central bank may provide some indication about the timing of lower interest rates, with the consensus view being that any monetary easing is unlikely to come much before the end of the year.
While optimism about the outlook for 2010 has been slowly rising, at least according to recent business and consumer indicators, the real economy data is still comparatively weak. The latest manufacturing numbers showed output up by 0.7% m/m in November, leaving it 4.7% below the level a year ago.
The bond market has sold off. The yield on the 10 year benchmark has moved up to 9.40%, after trading around 9.10-9.20% during the latter weeks of last year.
However, to a large extent this seems to reflect concerns about global yields rather than being anything South African specific —10 year US Treasury yields have risen in the past six weeks by 50bp to 3.70%.
Meanwhile, the rand continues to trade sideways, remaining close to R7.40/$. Rand bulls are tempered by a repeat of the verbal and market intervention seen last year when the exchange rate dipped below R7.30/$. At the same time, any major sell-off in the currency looks unlikely given the rand’s interest rate advantage.