An interesting week

27 March 2004 | Investments | General | Angelo COppola

The rand extended its gains last week against major currencies, closing higher at R6,58 against the US dollar from R6,65 in the previous week, reports the Nedcor Economic Unit.

Money market rates edged higher, except for the 9-month NCD, which eased marginally to 8,40% from 8,45%. The yields on the 3-, 6- and 12-monthNCDs rose to 8,15%, 8,35% and 8,80% respectively from 8,10%, 8,30% and 8,75%.

An improvement in gold stocks late in the week failed to cheer the markets, with most major indices recording declines for the week. The FTSE/JSE all-share index closed 1,5% lower at 10653,2 on Friday, down 162,8points from the previous week’s close of 10816,0.

The resources index lost 288,6points or 2,5% during the week to close at 11067, while industrials and financials also ended the week down, losing 1,2% and 0,1% respectively to close at 8611,9 and 9659,0.

Gold stocks bucked the trend, gaining 0,5% during the week to close at 2285,1 from 2273,2 a week earlier.

The Reserve Bank’s March 2004 Quarterly Bulletin released on Wednesday showed that consumer spending rose by a strong 4.2% in the final quarter of last year.

Consumer confidence was supported by the sharp drop in interest rates during the second half of last year and consistent improvements in real disposable income, which increased by a seasonally adjusted annualised 4% in the fourth quarter after rising by an equally healthy 3,7% and 3,3% in the third and second quarters respectively.

Despite sharply higher spending, households managed to keep debt levels under control and debt as a percentage of disposable income even eased slightly to 52,4% in the fourth quarter from 53,6% in the third quarter.

The strong growth in domestic spending was largely offset by a further deterioration in the country’s net export position, with imports surging, while exports dropped further in response to a strong rand and a mixed global economy.

The massive reversal on the financial account (up R17,2 billion from a decline of R0,1 billion in the third quarter) was mainly due to net inflows in the “other” investment category.

These included short-term foreign loans by the banking sector, an increase in long-term loans by the private non-banking sector as well as drawings by the government on financing facilities under its defence procurement agreement.

Capital inflows in the fourth quarter were also supported by increased in foreign direct investment in a local steel producing company.

Domestic inflationary pressures remained on an upward trend during February, with CPIX inflation rising to 4,8%y-o-y (0,5% m-o-m) from 4,2% y-o-y in January, while overall consumer inflation was up to 0,7% y-o-y (0,5% m-o-m) from 0,2% y-o-y in the previous month.

The main category behind the increase in both measures of inflation was the rise in vehicle running costs (up 4,6%m-o-m), reflecting the 30c/l hike in the petrol price during the month. However, strong increases in domestic worker’s costs and beverages prices also contributed to the rise during the month.

Headline producer inflation figure continued to reflect the high base established in early 2003 falling by 1,0% y-o-y, but the 0,5% month-on-month increase suggests that the cycle is starting to turn upwards.

According to Statistics South Africa, the unemployment rate in South Africa is estimated at 28,2% as at September 2003, using the official definition of unemployment.

This is down from 31,2% recorded in March 2003 and represents a decline of 680,000 people from the unemployed pool.

However, Stats SA also noted that there was no significant increase in employment over the period, suggesting that the decline in unemployment rate was most likely due to ‘discouraged job seekers no longer being classified as unemployed’.