South African markets opened the week on a positive note after stocks and the rand survived short-term weakness ahead of inflation data released this week, and on the back of the US Federal Reserve opening the door to further rate increases.
The rand started trade yesterday at R18.39 to the dollar before clawing back some gains at end the day, 0.6% higher at R18.30/$1.
The local currency was volatile over the past week, initially recovering to R18.27 against the dollar before sliding to close the week at R18.41 on Friday.
Investec chief economist Annabel Bishop yesterday said the rand was still seeking a directional driver as a risk-averse environment persists in global financial markets and has continued weakening, depreciating against key currencies such as the euro and British pound.
Domestically, all eyes are turning to March’s mining and manufacturing data – set to be released on Thursday – for insights into South Africa’s economic performance during the first quarter, which could impact the rand later in the week.
Bishop said the rand risks becoming entrenched at the current very weak levels, negatively affecting inflation and sentiment, and depreciation has not boosted the terms of trade either this year, as falling electricity supply and freight capacity weakens exports.
“The rand has weakened on a trade-weighted basis, which has added to inflationary pressures, with both lagged and fairly direct effects, and with South Africa’s targeted measure of inflation at 7.1% well removed from the targeting midpoint of 4.5%,” Bishop said.
“For South Africa, the SA Reserve Bank (SARB) should not miss this opportunity to restore some of the risk premium for the rand by hiking by 50 basis points, instead of 25 basis points this month, with financial markets pulling in their expectation recently of the size of the domestic hike.”
The market is expecting consumer inflation in South Africa to remain sticky at above the 7% mark, driven by elevated oil prices which will prompt SARB to hike its benchmark lending rate once more.
Traders have fully priced in a 25 basis-point increase after headline inflation surprised markets and accelerated for the second consecutive month to 7.1% in March.
The Monetary Policy Committee has repeatedly stressed the importance of bringing inflation within its target range of 3-6%, and anchoring expectations around the midpoint of this range of 4.5% per annum.
Meanwhile, stocks at the JSE began the week on a stronger footing as the JSE All Share index was 0.3% firmer around 78 572 points yesterday, its highest in over two weeks.
The local bourse was mainly pushed up by solid gains in resource-linked sectors, with Thungela Resources, GoldFields, Kumba Iron Ore, Northam Platinum, Sasol, Impala Platinum and Exxaro all recording gains.
This was the continuation of April as the JSE had a strong month buoyed by gold and platinum miners, with gold mine the best-performing industry on the JSE for the second consecutive month.
BUSINESS REPORT