Inside Insights 28 September 2009

Investment Intelligence|Inside Insights

A weekly, in-depth yet concise report on the most important recent market movements and economic developments.

Added on 28 September 2009 @ 10:52 AM

Brief blip for bourses

Equity markets were mixed in trade last week, as governing financial bodies of the various economies concluded key meetings. The spotlight was on the conclusion of the Federal Open Market Committee (FOMC) in the US as well as the important G20 meeting on Thursday and Friday. Markets were jittery ahead of these meetings, as investors became concerned about possible changes to current loose monetary policies. The US Fed highlighted that the worst of the recession is likely to be behind us, but the road to recovery remains uncertain. Despite the uncertainty surrounding the recovery, central banks in the US and Euro-Zone area agreed to scale back stimulus programmes and slow the purchase of dollar-denominated securities within the banking system. Investors immediately became concerned that authorities had curbed stimulus efforts too soon before the actual recovery began. This sparked off world wide profit taking and the negative sentiment which also forced commodity prices lower. However both the US Fed and Bank of England stated that interest rates will remain low until there are significant signs of growth. A host of economic data also dented recovery hopes as US housing worries plagued investor sentiment - US existing home sales declined in August to break a four month winning streak, whilst house prices increased less than expected. The week ended off with US new home sales data which rose below expectations in August, whilst US durable good orders plummeted. The data suggested that the economic recovery is in an early state, which made investors nervous and sparked off profit taking. Major bourses experienced their biggest weekly losses since July this year.

Interest rate unchanged

The Monetary Policy Committee (MPC) decided to hold the repo rate at 7%. This was inline with the expectation of most economists. Consumer Price Inflation (CPI) eased further in August to 6.4% year-on-year from 6.7% in July. The current strength of the rand - although a concern for exporters - is likely to support this downward trend. However, steep electricity price increases, double-digit wage settlement and a higher oil price pose inflationary risks. The decline in international commodity prices and appreciation in the rand also caused South African producer prices to fall more than anticipated in August. SA PPI fell 4.0% year-on-year in August, which was more than expected -3.8% and following July's decline of 3.8% year-on-year. The largest contributor to the decline was the low prices of imported platinum and coal, however this trend should reverse at year end, as current high commodity prices should reflect then. In light of the fact that it takes several months for the effect of interest rate cuts to be felt in the economy, the decision to leave the interest rate unchanged is prudent. Interest rates have been reduced by 5% since December last year in response to the economic downtown. With the repo rate at 7% - a level last experienced in 2006 - the prime interest rate remains at 10.5%. What remains to be seen is whether this is the end of the easing cycle or if mounting unemployment, weak domestic demand and a sustained weakness in the global economy prompts further cuts.

The Week Ahead

On the 29th, StatsSA will release August liquidations and insolvencies. High Liquidations and insolvencies are likely to persist as household disposable incomes remain depressed. However some lagged improvement in liquidations is expected after Q3 due to interest rate cuts of 5%.
SARB releases August money supply data measured by the M3 and Private Sector Credit Extension (PSCE) data.
Kagiso PMI for September is expected to improve further from 39.3 in August as confidence slowly returns to the manufacturing sector. However, the strong rand will probably keep recovery in the sector behind that of its global counterparts, and thus the local PMI will continue to lag global PMIs, many of which are already above 50..
NAAMSA releases new vehicle sales data for September. Sales improved slightly in August to -26.2% year-on-year from July's -27.5% year-on-year. However weak household incomes are likely to keep vehicle demand low and should only see a turnaround at year end when rate cuts come into effect.

Key Indicators - Please also visit our website for up-to-date indicators

Market	Index	Closing Value @ 18/09/2009	% Change 1 week	% Change Year to Date
Currency	Rand/US$	R7.38/$	+0.1%	+20.5%
	Rand/GBP	R11.80/₤	+2.0%	+12.6%
	Rand/Euro	R10.88/€	+0.3%	+16.1%
	US$/GBP	$1.60/₤	+2.4%	-10.0%
	US$/Euro	$1.47/€	+0.0%	-5.6%
	Yen/US$	¥89.56/$	+1.7%	+2.5%%
JSE	All Share	24945	-3.3%%	+14.6%
	Top 40	22318	-3.8%	+13.4 %
	Financial 15	7001	-1.9%	+17.4%%
	Resources 20	43989	-5.4%%	+9.6%
Bonds	All bond	296.10	-1.0%	-2.0%
	R153 (yield)	7.43	+0.1%	+1.8%
US	S&P 500	1048.56	-1.8%	+12.5%
	NASDAQ	2097.59	-1.6%	+28.5%
Japan	Nikkei 225	10265.98	-1.0%	+15.9%
UK	FTSE 100	5082.20	-1.8%	+11.4%
Emerging Markets	MSCI	922.31	+4.8%	+58.8%
Brent Crude Oil	Spot $/barrel	64.34	-8.6%	+47.7%
Gold	Spot $/oz	991.40	-2.0%	+13.1%
Platinum	Spot $/oz	1281.50	-3.9%	+35.1%

Fairbairn Capital | Old Mutual

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