Compiled by: Richard Favis
RBC Capital Markets
+27 11 784 5065
In the absence of any South African data releases, the local markets took direction from the international markets. The rand lost ground to a firmer US dollar, while bonds tracked US Treasuries for the most part.
After last week's mini-rand rally, after the South African Reserve Bank left rates unaltered at 7%, the rand depreciated against the dollar this week. The dollar posted gains across the board after the better than expected US producer prices were released, which backed expectations that the Federal Reserve would keep raising interest rates.
A weaker gold price didn't help the local currency either. Gold was trading at around $439/oz at the time of writing, from $445 a week ago. Gold is still one of South Africa's main exports. The rand has depreciated by over 13% to the dollar this year alone, nearly wiping out its gains of 18% last year.
Last week's decision by the Reserve Bank to leave rates unchanged, on the back of the volatile oil price, seemed to be vindicated this week, with Brent crude oil rising to highs of over $67 a barrel before easing somewhat to around $63 a barrel.
In light of the rand's recent weakness, oil's new highs and weaker US treasuries, the short term prospects for local bonds seem bearish.
The benchmark R153 is trading at a yield of almost 7.60% from its previous close of 7.56%, with forward rates pricing in little chance of a rate cut when the Monetary Policy Committee meets again in October. Analysts are now predicting no interest rate changes for the remainder of 2005.
Next week is brimming with market moving data releases including GDP, consumer inflation, producer inflation indices, money supply, as well as consumer credit extension numbers.
GDP (quarter on quarter, annualised) is expected to rise to 4.5% in the second quarter of 2005, from 3.5% in the first quarter. This is 1.5% away from where the government would like to see GDP.
Although consumer as well as producer inflation are both expected to rise next week, the market will scrutinise these numbers to gain some insight as to what the chances are of a further rate cut this year.
CPIX, which the government uses as its inflation target measure, is expected at 3.9% year-on-year for July from 3.5% in May, while July's PPI is expected at 3.2% year-on-year from 2.3% previously. Consumer credit extension is expected to rise to 22.10% year-on-year from May's 21.89% on the back of South Africa's 24-year low interest rates.