PMI rebounds in June

"The improvement in manufacturing sector conditions may be related to continuing strong domestic demand and the recent depreciation of the exchange rate," said André Roux, head of fixed income at Investec Asset Management.

"The magnitude of the increase in the PMI in June is surprising and may represent an overreaction on the part of purchasing managers to the recent depreciation in the currency."

However, the direction of the change is consistent with the BER's second quarter manufacturing survey, which also points to increases in domestic sales and production and signs of a bottoming out of the decline in exports, Roux added.

The increase in the PMI in June was supported by all the sub-indices. The biggest contribution, however, came from new sales orders, which jumped to 66,3 in June from 55.0 in May.

The seasonally adjusted index for employment increased noticeably from 50.6 in May to 53.3 in June. "This welcome increase is in line with the improvement in business activity and purchasing commitments," Roux pointed out.

Finally, purchasing managers adjusted their six-month expectations slightly downwards, although the overall mood remained very positive. The expected business conditions index declined from 70.5 in May to 69.3 in June.

"The continued optimism may also be due to the more competitive levels of the Rand," Roux concluded.