Business Confidence and Rand Update

h3. Business Confidence

In Q4 2014, the BER’s Business Confidence Index increased for a second consecutive quarter to 51.0 from 46.0 previously, marking the first time that the gauge has risen above 50 in six quarters. Sentiment in the building and manufacturing industries improved meaningfully, to more than offset a small decline in retail confidence, while wholesaler and new motor dealer levels were relatively unchanged. Specifically, the building sub-index accelerated to 66 in Q4 from 53 in Q3, the highest level since the 2008 recession. The manufacturing sub-gauge similarly rose sharply, reflecting the dissipating impact of industrial action, although remained below 50 to signal still tough operating conditions. On balance, weak aggregate demand and supply side constraints suggest that sentiment is unlikely to witness a further significant increase in Q1.

h3. Rand Update

Following on from the strong headline US payrolls numbers on Friday, Fed rhetoric has been hawkish, giving impetus to the dollar strengthening bias. Fisher has said that the bank should press ahead with a rate hike and not risk delaying too long, while Mester has cited substantial economic progress towards the bank’s goals. Meanwhile, a higher than expected Chinese CPI print of 1.4% y/y overnight is unlikely to have done commodity currency sentiment any favours considering that the market is pricing in the need for more PBOC stimulus to reignite Chinese demand.

The rand’s fundamental shortfalls have contributed to a high frequency of underperformance for the currency relative to its peers in short-term trade. The lengthy period of fundamental deterioration has allowed for these short-term underperformances to sum up to a long-term picture which remains overwhelmingly bleak and will not meaningfully correct until policymakers are forced to make bolder (and wiser) turns in strategy. That ratings agency S&P yesterday stated SA could avoid junk status for at least the next 2yrs provided it addressed its economic weaknesses does not imply that actual credit erosion is not taking place. In the session ahead, the rand will likely continue to draw on direction from the major markets.

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