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The ZAR - South Africa Rand weekly update 30 Jun 2008
In this week's
update: Sterling rates steady for now
- UK mortgage approvals slump
- RSA inflation heads higher
Covering a range between R15.5 and R15.9 the Pound went nowhere. It opened in London this morning at R15.7, only slightly adrift from last Monday's R15.8.
The week's economic data were not particularly helpful to Sterling. Its saving grace was that figures from elsewhere were almost equally as lacklustre. The highlight - if a negative figure can be referred to as such - was the CBI Distributive Trades survey. After the previous week's unbelievably strong Retail Sales performance the market was ready for a burst of harsh reality from the shopkeepers. Forecasters were going for a 16 reading so when it turned out to be only 9 there was a degree of relief.
Rather less satisfactory was mortgage activity among BBA members. The Independent was perhaps exaggerating when it said "the number of mortgages approved for house purchases slumped to an all-time low." It would be a surprise if the figure had not been lower in, say, 1914 or 1939. Yet the point was well made that, compared to a year ago, fewer than half as many people are buying. According to the BBA, "only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders." Scant consolation when there are 15 sellers for every buyer.
Bank of England Governor Mervyn King was slightly less gloomy than usual during his Q&A session at the parliamentary Treasury Committee. He repeated his story about inflation rising above 4 per cent by the end of the year but was evasive about what might happen to interest rates. The media and the market were left guessing and failed to come up with any firm conclusion.
The South African story focused on inflation. Steel and oil prices pushed the Producer Price Index five per cent higher between April and May to leave it more than 16 per cent higher than a year ago. The PPI figure underscored CPI data from earlier in the week. CPIX inflation accelerated again, this time to 10.9 per cent. The figure was higher than April's 10.4 per cent and exceeded forecasts of 10.7 per cent. Headline inflation, including all items on the shopping list, hit 11.7 per cent.
Local analysts expect to see inflation as high as 15 per cent before the end of the year. The way prices are rising it makes another increase in the South African Reserve Bank's Repo rate all but inevitable.
Yet the South African economy is slowing is the employment data are any guide. The number of people in work grew by just 0.1 per cent in the first quarter of 2008, compared with a 0.8 per cent increase in Q3 07. The pace of increase in PPI makes it likely that this softening will continue.
Figures this week for Private Sector Credit and house prices will cast more light on how consumers are coping with the combination of higher interest rates and a slowing economy. The near certainty of even higher yields should keep alive investors' interest in the Rand. Whether that means they keep on buying is another question. Buyers of the Rand should hedge, buying up to half their requirement forward.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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