Thought for the week

It was a busy week on the international economic front that included an unexpected ECB rate cut and positive data out of the US.

Last week, we saw the Bank of England (BOE) keep lending rates unchanged, the European Central Bank (ECB) lower its benchmark and marginal lending rate, a strong gross domestic print out of the US as well as a good non-farm payrolls figure.

The ECB rate cut came as surprise but highlighted the central banks aggressive commitment to stabilizing the euro zone. The accommodative monetary policy announcement saw significant weakening of the Euro compounded by a strengthening dollar after the GDP and non-narm payroll figures reported out of the US supported concerns around a nearing tapering of stimulus. Perhaps the euro which had been nearing 1.40/$ mark had helped prompt the lending rate cuts by ECB President Mario Draghi to help aid the regions exports trade. Most analysts were expecting the monetary easing to come closer to year end rather than now.

Somewhat overshadowed by international data, local manufacturing production was reported as dropping 3.3% in September year-on-year, while mining production gained 0.6% year-on-year in September. There has been perhaps an early indication of sector switching in our equity market as resource counters, which are viewed as offering relative value in an expensive market start to surge. Retail counters, more specifically those with a larger credit sales exposure, have come under severe pressure this week. Truworths and Foschini released results which were subpar in terms of market expectation and this catalyzed weakness within the sector.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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