Our local bourse has once again rallied to new all-time highs as emerging markets gather favour once more, outperforming their frontier market peers.
The Monetary Policy Committee (MPC) was the prevalent economic data point this week. The decision to keep interest rates on hold was not unexpected. However, the annualised Consumer Price Index (CPI) figure coming in at 6.1% on Wednesday, which is outside the reserve banks targeted band, had investors ready for the possibility of a 50bps rate hike.
The decision to keep interest rates unchanged by the South African Reserve Bank (SARB) showed a majority of five members were in favour thereof, while two members would have preferred interest rates to have increased. Reserve bank governor Gill Marcus also continued to manage expectations by reaffirming that we are at the beginning of an increasing interest rate cycle and we could expect further increases moving forward.
The delayed effect of a depreciated rand is said to have influenced the current inflation reading, and headline CPI figure for the current year is anticipated to be 6.2%. With no clear end in sight for the current platinum sector strike, as well as a slowdown in the manufacturing sector, the reserve bank’s outlook for economic (GDP) growth in 2014 has softened by 0.5% from 2.6% to 2.1%.
China managed to post its best HSBC Flash Manufacturing PMI print in the last five or so months, with an index reading of 49.7 ahead of consensus albeit still alluding to minor industry contraction.
In the US Flash Manufacturing PMI data was perhaps the highlight of the week, showing industry expansion as well as a marginal beat on expectation. However the rest of economic data points were rather lacklustre, as 14 000 more people than were expected claimed unemployment benefits last week and existing home sales fell short of consensus estimates.
In the UK the annualised inflation (CPI) was reported at 1.8%. The Bank of England voted unanimously to maintain the current level of the asset purchasing program, while keeping benchmark lending rates unchanged.