ED STODDARD, Johannesburg | Monday
SOUTH African markets are braced for a potentially bruising week after European shares slumped to near three-year lows on Friday in the wake of Tuesday’s terror attacks in the United States.
Wall Street’s Monday opening will be the focus of most of the attention after a four-day closure left markets around the world groping for direction.
The local bond market will keep a sharp eye on domestic consumer price data due on Tuesday for any clues to the decision the central bank may make regarding interest rates at its monetary policy committee meeting on Thursday and Friday.
The central bank’s key CPIX inflation measure is seen slowing to 6,2% in August from 6,4% in July, bringing it very close to the top of the bank’s three to six percent target in 2002, according to a Reuters’ poll of analysts.
Bond yields, which have fallen close to 200 basis points this year in response to a shrinking supply of fresh debt, are seen holding fairly steady before the inflation data.
The yield on the key R150 bond, due 2005, was bid at 10,19% in late Friday trade, three basis points below late on Thursday.
”I don’t think we’ll do much before (CPI),” said Barclays analyst Leon Myburgh. But he added that the market was very fickle and could quickly move in any direction on rumours.
South African shares will probably extend losses on Monday after the bourse fell back on Friday to the five-month lows it hit soon after the Tuesday attacks.
The all-share index ended 1,7% or 140 points lower at 8,121 in hectic trade, with cash being widely viewed as a surer bet than equities in this nervous atmosphere.
The events in the United States this week mean South Africa’s central bank is likely to delay a widely-anticipated rate cut when it meets this week — unless inflation subsides much faster than expected or there are rate cuts elsewhere.
A sharp rise in oil prices and a slide in the rand triggered by the terror in the US has reinforced the case for the bank to keep its key repo rate steady at 10%, analysts said.
Nine out of 12 economists said they believed the South African Reserve Bank will cut interest rates at its meeting in November, to boost the sluggish pace of domestic growth and offset the damaging effects of a sharp global slowdown.
However, three are betting that the SARB will cut interest rates at the end of its Thursday-Friday meeting, given rising concern that the devastating attacks in New York and Washington may help tip developed countries into recession.
”It’s a very difficult call, there is so much uncertainty at the moment…but I think they will wait,” Standard Bank economist Goolam Ballim said.
He is predicting a 50-basis-point repo rate cut at the next monetary policy meeting, set for November 15-16.
The rand, hard hit this year by labour strife, privatization concerns and the collapsing economy in neighbouring Zimbabwe, may be in for another rough week as investors dump emerging market assets — though a rising gold price could help it.
The rand hit a new low of 7,9790 against the euro on Friday before settling back to around 7,93.
Against the dollar it closed Friday around 8,61/dlr, within striking distance of its low of 8,6650, which it could easily retarget this week because of emerging market jitters.
The rand has lost over 12% against the dollar this year and over nine percent against the euro. – Reuters