Global markets
Better than expected Eurozone purchasing managers
index
PMI's is a survey of production managers and is a good
leading indicator of purchasing order books. A
stronger-than-expected number may suggest that the recession may
not be as severe as feared; as a result we saw a relief rally
in European debt and equity markets.
Highlights
Greece austerity
Greek negotiators are back at the drawing board in terms of
implementing measures to avoid bankruptcy. Risks for South Africa
remain.
More quantitative easing on the horizon?
Ben Bernanke says another round of quantitative easing (QE)is
still on the table. This is seen as positive from a short-term
liquidity perspective. The combined impact of fiscal and monetary
stimulus should support consumers and, very importantly, job
creation. Longer-term fiscal reform requirements cannot be
ignored.
US - lower rates for longer
The US Federal Reserve Bank extended its zero interest rate time
horizon from mid-2013 to late 2014. Keeping interest rates low is
an important form of monetary stimulus: consumers and businesses
naturally benefit from lower lending rates since the cost of
financing and borrowing is low, which in turn reduces the debt
servicing ratio and stimulates demand.
South African markets
Risk-on trade helping the rand to strengthen and ALSI
hits all-time high
The direction of the rand, for now, seems to be that it is
firming, supported by Euro strength and positive news from the US
Fed. A firming rand reduces the costs of imports and thus helps cap
imported inflation.
On Thursday, the FTSE/JSE All Share Index broke through the 34
000 mark for the first time ever.
Highlights
SA producer price inflation (PPI) lower than
expected
Lower year-on-year costs for producers' mean that the pass
through effect of this inflation to consumers will be lower than
expected.
Food still a risk for CPI inflation
After periods of bumper harvests, erratic rainfall is having an
impact on grain harvests in southern Africa. In addition, there is
increasing demand for food given global population growth. Food
accounts for 14.3% percent of the inflation basket, therefore it
has a direct impact on the consumers' spending power.
SA interest rates unlikely to go anywhere this
year…
Interest rates remain at a 30+ year low in South Africa, and are
expected to stay at these levels for the rest of this year. This is
positive for consumer spending, debt servicing costs and financing
of purchases.
