|Aloha Captains of Industry
As the turn of the decade approaches bringing with it our nation’s time in the media spotlight hosting FIFA’s 2010 world cup and resurgent hope of revival, I bid you your families a warm East Coast greeting. It’s my privilege to present GENUITY’s October “MONTHLY MARKET VIEW”…
|remain unchanged (REPO 7.0%, PRIME 10.5%) with Mboweni’s final MPC sitting citing an unchanged inflation outlook and mixed signals on both the production and consumption growth front for their decision. This follows the run of cuts bringing the prime lending rate down from its peak of 15.5% (NOV 2008). There remains cautious optimism in the market for a further 50basis point cut before year-end and the bottom of this interest rate cycle is reached, particularly given the vulnerability of our local economic activity.|
|aided by a continued moderation in food and commodity prices, weak demand and a stronger rand PPI fell at -3.8% whilst the CPI index for September eased further to +6.1%, again its lowest level since the peak of 13.6% (AUG 2008), taunting that 6% upper band of SARB’s target. There was no major change in the Reserve Bank’s short-term outlook for inflation, as the positive impact of a stronger rand was offset by cost pressures from administered prices. The SARB still expects CPI to fall to within the 3% to 6% target range in the second quarter of 2010 and remain there until the end of 2011. The National Treasury’s forecasts indicate that the government is less optimistic on the inflation trajectory, with inflation expected to return to the target band only in 2012. Finance Minister Gordhan reiterated the government’s commitment to the inflation targeting framework, which he characterised as being an important element of the government’s macroeconomic coordination and preserving the economy’s competitiveness. However, he welcomed debate on this topic, adding that monetary policy should support the government’s aim of balanced and sustainable growth.|
|EQUITY & BONDS|
|the JSE all share index closed October up at 26,360 points, continuing to rally hard from last year’s trough of 17,814 points. Again, analysts agree that greater liquidity abounded in the market last month in line with stronger Equity markets worldwide.|
|the Rand lost ground against major currencies in October due to a stronger Dollar, a dip in precious metal prices and a relaxation of exchange controls announced by minister Gordhan, closing October at R12.81 to Sterling and R7.81 to the Greenback, still significantly up from new year’s day trading levels of R13.45 and R9.30 respectively.|
|presenting the Medium Term Budget Policy Statement (MTBPS) to parliament, Minister Gordhan stressed the unfavourable times that the South African economy is enduring.GDP growth forecasts have been revised downwards significantly, with a contraction of 1,9% projected for 2009 followed by moderate growth in the next three years. Export performance is not expected to rebound significantly over the forecast period. The significant reduction in imports will help to reduce the current account deficit to 4,9% of GDP in 2009. A trade surplus of R3 871Mill was recorded in September from a deficit of R2 276Mill in August, helped by the stronger rise in exports (up by 13,6% m-o-m). However, the Treasury expects imports to rise at a faster pace than exports from 2010 onwards, pushing the deficit up to above 6% of GDP over the next three years. Weak economic activity, both domestically and globally, will drag gross tax revenue down by a massive R70,3Bill compared to the estimates presented in February’s national budget. Government spending is projected to increase by 17,6% compared to the past fiscal year. Medium-term spending priorities are focused on expanding employment and safeguarding social security, improving the quality of education and skills development, enhancing the quality of healthcare, rolling out a comprehensive rural development strategy, a broad-based approach to crime, as well as creating a built environment to support economic growth. The projected budget deficit for 2009/10 has increased substantially to 7,6% of GDP and the deficit will remain large over the Medium-Term Expenditure Framework (MTEF) 2010/11 to 2012/13. This has pushed the government financing requirement higher, which will be met mainly through the issuance of domestic long-term loans.|
|CREDIT & MONEY SUPPLY|
|growth in Credit extension again fell to 1.5% y-on-y to its lowest level in four decades since records began in 1968 as households and companies remain cautious in an uncertain environment. Asset-backed Credit and in particular instalment sales and leasing finance contracted at the fastest pace on record at -5.2% y-on-y (mainly reflecting weak demand for vehicles). Growth in money supply also continued to moderate, slowing to 4% y-o-y from 5,5% in August. Over the month, money supply fell by R11,6 billion, due to declines in net foreign assets, net claims on the government sector as well as a drop in claims on the private sector.|
|Statistics South Africa’s Quarterly Labour Force Survey (QLFS) indicated that the level of unemployment increased to 24,5% in the third quarter of this year with all major sectors (except Transport) recording declines in employment. The outlook for global trade remains uncertain. Latest data from The Netherlands Bureau for Economic Policy Analysis’s World Trade Monitor, which analyses trade activity covering over 95% of world trade, show that global trade volumes contracted by 2,0% m-o-m in August after expanding by their strongest monthly rate in 5 years in July (3,5% m-o-m). Global trade rose by 1,8% in the three months to August 2009, but world trade volumes still remain 18% below their April 2008 peak.
locally consumer confidence remains under pressure from strict lending regulation, falling household wealth and deteriorating employment conditions. A moderate growth of 1,5% in 2010 on the back of a recovery in household spending and the boost from the 2010 World Cup is expected.
Proudly South African,