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Repo rate cut back on the cards for South Africa as inflation seen easing

14 June 2017 Comments (0) Latest Updates from Reuters

By Vuyani Ndaba

JOHANNESBURG (Reuters) – South Africa’s economic growth will be much softer this year after the country slipped into recession in the first quarter, and with inflation easing an interest rate cut is back on the agenda, a Reuters poll found.

Africa’s most industrialised nation is expected to expand 0.7 percent in 2017, 0.2 percentage points slower than last month’s median as economists trimmed growth forecasts following South Africa’s first recession for eight years.

The median prediction for interest rates shows a cut is back in the forecast horizon – 25 basis points to 6.75 percent in January or March. Some economists have pencilled it in as early as July or September this year.

In March, the consensus was for the repo rate to be cut to 6.75 percent early next year but then President Jacob Zuma changed his finance minister for a fourth time, triggering debt downgrades and leading economists to push cuts off the horizon.

But a trimming is back on the cards and Mandla Maleka, chief economist at Eskom Treasury, said the cut could come earlier than 2018.

“It will be contingent on the persuasive improvement on domestic inflation and less volatile currency. Growth – much as it is not targeted by the Monetary Policy Committee – could be the game changer,” Maleka said.

After contracting 0.7 percent in the first quarter, the economy is expected to have rebounded and will expand 0.8 percent this quarter and 0.9 percent in the third.

In contrast to South Africa, the U.S Federal Reserve is widely expected to raise its interest rate this week due to a tightening labour market and may also provide more detail on its plans to shrink the mammoth bond portfolio it amassed to nurse the economic recovery.

South Africa’s Reserve Bank does not have the fire power of bond purchases like the U.S. Fed and only targets inflation, with an aim to keep it between a 3-6 percent range.

Consumer inflation slowed to 5.3 percent in May, and is expected to average 5.5 percent this year, a change to last month’s median of 5.7 percent.

Economists are worried that debt denominated in the heavily traded rand is in serious risk of being downgraded to “junk status” this year, ejecting it from crucial bond indexes that automatically invest in local bonds and prop up demand for the rand.

However, Thea Fourie, senior economist at IHS Markit, added that lower inflation and interest rate levels could support real incomes of households.

Fourie added South Africa’s growth environment was low partially due to very weak confidence, both for investors and consumers.

“This means big ticket spending plans are delayed,” she said.

The ruling African National Congress (ANC) is due to hold a conference at the end of June to review policy and make recommendations on amendments or new strategies. Investors hope that will address confidence issues.

 

 

(Editing by Alison Williams)

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South Africa’s rand clings on to gains despite downgrade fallout

14 June 2017 Comments (0) Economy, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand edged firmer on Wednesday, clinging on to recent gains despite continued fallout triggered by a Moody’s ratings downgrade last week and an anticipated interest rate hike by the U.S. Federal Reserve.

At 0640 GMT, the rand traded 0.2 percent firmer at 12.7350 per dollar compared to close of 12.7600 overnight in New York, bringing weekly gains to around 1.3 percent.

Following a one notch downgrade to its lowest sovereign investment grade on Friday, Moody’s cut the ratings of a dozen banks and companies including embattled power utility Eskom, further shaking confidence in Africa’s most advanced economy.

Quarterly business confidence and April retail sales due in the session are expected to shed more light on ailing economy. Growth shrunk 0.7 percent in Q1 2017 after a 0.3 percent contraction in Q4 of 2016.

Traders expect the U.S. central bank to increase interest rates by a notch when it concludes a policy meeting on Thursday, a move that could dampen demand for high-yielding emerging market assets.

South African bonds were flat, with the yield on benchmark 2026 government bond inching up 0.5 basis points to at 8.445 percent.

Stocks set to open higher at 0700 GMT, with the JSE securities exchange’s Top-40 futures index up 0.3 percent.

 

(Reporting by Mfuneko Toyana; Editing by Ed Cropley)

 

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South Africa’s rand hits 9-month high as election results trickle in

4 August 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand touched a nine-month high against the dollar and government bonds firmed on Thursday as the smooth running of local government elections and expectations that interest rates in leading economies will remain low boosted sentiment.

At 1104 GMT, the rand traded at 13.7100 per dollar, 1.44 percent firmer from its New York close on Wednesday, its strongest level since Oct 29.

The yield for the benchmark government bond due in 2026 dipped 10.5 basis points to 8.55 percent.

“You can attribute some of the movements to the smooth running of the elections without any major incidence of violence or reports of cheating. On the day (the rand) is outperforming other emerging currencies against the dollar,” ETM market analyst Ricardo Da Camara said.

South Africans cast their votes in local elections on Wednesday and the opposition Democratic Alliance (DA) led in three major cities on Thursday as votes were counted, threatening to deal the biggest electoral blow to the African National Congress (ANC) since the end of apartheid two decades ago.

The ANC – which ended white-minority rule when it swept to power in the country’s first democratic elections in 1994 – held a big lead in the national count.

“It’s not entirely clear that the DA is good and the ANC is bad but the market generally welcomes more contested democracy,” Nomura analyst Peter Attard Montalto said.

Other traders said the rand also got support from investors seeking higher yields after the Bank of England cut interest rates for the first time since 2009 on Thursday, while near-term U.S. rate hike prospects cool.

On the bourse, stocks also gained with Sappi surging more than 7 percent after the paper maker reported an eight-fold jump in quarterly profit as of 1117 GMT.

The blue-chip JSE Top-40 index was up 0.3 percent at 45,671 and the broader All-share index added 0.3 percent to 52,650.

 

(Reporting by Tiisetso Motsoeneng and Olivia Kumwenda-Mtambo; Editing by Ed Cropley and Richard Balmforth)

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South Africa’s rand retreats as lower gold price dampens risk-on rush

19 July 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand backtracked a touch on Tuesday, reversing the previous session’s strong gains with demand dampened by lower gold prices as investors held bets ahead of a local interest rate decision later in the week.

* Rand at 14.2725 at 0700 GMT, 0.3 percent weaker than New York close. Gained nearly 2 percent in previous session, testing 14.2000 resistance before retreating slightly.

* Global demand for risk assets moderating after Monday’s rush, but traders see emerging assets remaining on front foot as investors continue search for yield.

* Gold flat on Tuesday, holding on to its losses from the previous session as appetite for risk assets caps safe haven demand.

* All 31 economists surveyed by Reuters last week expect central bank to keep repo rate on hold at 7.0 percent on July 21.

* Government bonds firmer, yield on benchmark 2026 paper cuts 1 basis point to 8.83 percent.

* Stocks open weaker, blue chip index down 0.74 percent at 46,099 points, All Share slips 0.7 percent to 52,670 points.

 

(Reporting by Mfuneko Toyana; Editing by Ed Cropley)

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South Africa’s rand steady, caution prevails ahead of British referendum

22 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand pulled back from seven week highs against the dollar on Wednesday, with traders and analysts expecting caution to prevail on the eve of a British referendum on whether to remain in the European Union.

Domestic economic headlines have taken a backseat in moving the currency this week, although inflation data due out at 0800 GMT could boost it slightly if higher than expected, raising the prospect of higher interest rates this year.

At 0653 GMT the rand traded at 14.7290 to the dollar, not far off its previous close at 14.7350.

It was however down about 10 cents from Tuesday’s high of 14.6225, the rand’s strongest level since May 4 which came on the back of a rise in risk appetite as investors bet on Britain staying in the EU after Thursday’s vote.

“Optimism in financial markets ahead of the UK referendum has tempered ahead of the vote tomorrow,” Standard Bank said in a note.

Government bonds edged higher in early trade, with the yield for debt due in 2026 dipping 2 basis points to 8.97 percent.

The stock market’s Top-40 futures index was up 0.26 percent, signalling a slightly firmer start for the bourse at 0700 GMT.

 

(Reporting by Stella Mapenzauswa; Editing by Tiisetso Motsoeneng)

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South Africa’s rand gains after police say have no plans to arrest finmin

23 May 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand strengthened early on Monday after the police said they had no plans to arrest Finance Minister Pravin Gordhan over his role in the formation of a surveillance unit within the revenue service.

At 0700 GMT the rand had edged 0.2 percent firmer to 15.6050 per dollar.

Bonds were also firmer in early trade, with the yield on the benchmark government issue due in 2026 cutting 6 basis points to 9.33 percent.

The elite Hawks police unit told Reuters it had no plans to arrest Gordhan as part of an investigation into a surveillance unit set up by the revenue service during his time in charge. Gordhan headed the tax agency between 1999 to 2009.

Numerous political upheavals since President Jacob Zuma’s shock sacking of then Finance Minister Nhlanhla Nene in December have seen the rand suffer.

Traders said the rand would benefit if political tensions around the finance minister eased.

“The rand has rebounded somewhat since hitting all-time lows in thin liquidity during mid-January, aided by hawkish action from the SARB (South African Reserve Bank) and generally calmer emerging markets,” analysts at NKC Africa Economics said in a note.

“However, further gains will be difficult given the heightened political risk environment.”

The rand has gained more than 1.5 percent against the greenback since slipping to a new one-month low after last weeks decision by the central bank to keep lending rates unchanged at 7 percent.

Stocks opened weaker, with the benchmark Top-40 index shedding 0.38 percent to 46,356 points by 0708 GMT.

 

(Reporting by Mfuneko Toyana and TJ Strydom; Editing by James Macharia)

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South Africa’s rand weakens, focus on U.S. jobs report

6 May 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand weakened against the dollar in thin trade early on Friday as investors positioned for a U.S. jobs report that is likely to provide clues about the Federal Reserve’s monetary policy intentions.

At 0705 GMT, the rand traded at 15.0550 versus the dollar, 0.6 percent weaker from Thursday’s New York close.

“Trade remains jittery and liquidity thin, so it is not going to take much to send the market running again,” Rand Merchant Bank analyst John Cairns said in a note.

“…The monthly (payrolls) release no longer has the importance that it had a year back but still remains the single most important global economic indicator for the markets.”

A strong number could encourage the Fed to raise rates sooner, lending some support to the dollar.

On the stock market, the Top-40 index was down 0.67 percent, while the broader all-share fell 0.44 percent.

In fixed income, the yield for the benchmark government bond due in 2026 was up 1 basis point at 9.195 percent.

 

(Reporting by Zimasa Mpemnyama; editing by John Stonestreet)

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South Africa’s rand weakens as oil price retreats

20 April 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand weakened against the dollar on Wednesday, in line with a pullback in commodity currencies as the global oil price fell one more.

The rand fell to 14.3750 versus the dollar earlier in the session, and was trading at 14.3015 by 0656 GMT, 0.2 percent lower than Tuesday’s New York close.

Commodity-linked currencies such as the rand reversed the previous day’s gains as a recovery in crude oil prices stalled after a workers’ strike which had cut output ended in Kuwait.

The rand had touched a near five-month high of 14.1900 on Tuesday in the wake of improved global risk sentiment linked to better oil prices.

“Commodities are off their highs from yesterday and trade softer so far; this has seen the rand get back above 14.3500 with more resistance at 14.4000/4100 likely to attract offers first up,” said Standard Bank trader Oliver Alwar.

Traders and analysts said the rand could take further direction from domestic CPI data due out at 0800 GMT, with analysts polled by Reuters expecting the main year-on-year number to ease to 6.3 percent from 7 percent.

Government bonds also weakened, and the yield for the benchmark instrument due in 2026 rose 4 basis points to 8.925 percent.

The stock market looked set to open slightly down, with the

Top-40 futures index down 0.5 percent by 0656 GMT.

 

(Reporting by Tanisha Heiberg; Editing by Stella Mapenzauswa)

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South Africa’s dollar bond oversubscribed despite political cloud

8 April 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa has successfully issued a dollar bond overseas to help finance its medium-term foreign currency commitments, the Treasury said on Friday, touting this as a sign of investor confidence despite political upheaval.

Finance Minister Pravin Gordhan has been anxious to reassure investors about continuity in fiscal policy after President Jacob Zuma changed finance ministers twice in less than a week in December, triggering a panic run on the rand.

On Friday, the Treasury said its $1.25 billion 10-year bond, with a coupon of 4.875 percent, had been more than two times oversubscribed, mostly by investors based in Europe and the United States.

“The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management,” it said.

Zuma, who has been dogged by controversy over the past decade, is under mounting pressure to quit after the Constitutional Court found he flouted the law by not heeding a directive to make payments for upgrades to his personal home.

Ratings agencies, most recently Standard & Poor’s, have warned they might downgrade South Africa if political issues divert the government’s attention from properly implementing policy.

S&P and Fitch both rate South African credit just one notch above junk, while Moody’s is two notches over sub-investment grade.

Analysts said South Africa had benefited from a general rise in demand for high-yielding emerging market assets after the U.S. Federal Open Market Committee (FOMC) signalled it might be a while before U.S. rates rise.

“There was clearly a window here for them to issue after the FOMC reprice and before a wall of downgrades from the ratings agencies,” Nomura analyst Peter Attard Montalto said.

“They have significant forex deposits already so they can probably wait until next year for the next issuance.”

The rand extended gains against the dollar after the Treasury’s statement, climbing to a session high of 15.0155, up 1.5 percent for Thursday’s close.

Government bond prices also rose, sending the yield on the benchmark bond due in 2026 down 8.5 basis points to 9.19 percent.

The Treasury said the new foreign bond formed part of South Africa’s 2016/17 financing programme and would partly finance foreign currency commitments of $6.4 billion over the medium term.

The coupon for the bond represents a spread of 335 basis points (bps) above the 10-year U.S. Treasury benchmark, which analysts said was in line with South Africa’s current funding rate.

“I don’t think it’s too expensive,” said Rand Merchant Bank trader Gordon Kerr.

The price compares to initial thoughts of plus 350 bps and guidance of plus 335 bps, plus or minus 5 bps.

“There is always demand for our paper and there will always be demand for EM in general because of the nice yields that it provides,” Rand Merchant Bank trader Gordon Kerr said.

 

(By Stella Mapenzauswa. Additional reporting by Olivia Kumwenda-Mtambo in Johannesburg and Claire Milhench in London)

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South Africa’s rand seen struggling due to local politics, risk aversion

6 April 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand edged up against the dollar on Wednesday but was still off recent four-month highs, with local political uncertainty as well as overall low risk appetite seen capping any significant gains.

Stocks opened slightly firmer, with the JSE securities exchange’s Top-40 index up 0.5 percent from Tuesday’s close.

At 0714 GMT the rand traded at 15.0350 to the greenback, gaining 0.4 percent from its previous close in New York.

The rand has however lost significant ground since rallying to 14.6050/dollar last week as investors cheered a court ruling that President Jacob Zuma unconstitutionally ignored a directive to pay for some of the state-funded upgrades to his home.

Zuma, who has been dogged by controversy since becoming president in 2009, survived an impeachment motion by the opposition on Tuesday thanks to the ruling African National Congress’s majority in parliament.

Investor sentiment has been shaky since Zuma inexplicably fired the former finance minister in December, raising fears that Pretoria might veer away from prudent fiscal policies.

“The rand is back above 15.00, but not only because of domestic events,” Standard Bank said in a note, pointing to a general sell-off in emerging market currencies.

“We still believe that the currency will struggle to maintain a foothold below 15.00 into mid-year.”

In fixed income, the yield on debt due in 2026 eased 2 basis points to 9.24 percent in early trade.

 

(Reporting by Stella Mapenzauswa; Editing by Tom Heneghan)

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