Nedbank Money Market comment - Oct 04 - Fund Manager Comment25 Nov 2004
Inflation continues to surprise as the latest figures released are all below market expectation. The local currency's strength was further aided by a weaker dollar and is definitely a positive in keeping inflation well within the target rate of 3% to 6%. The South African Reserve Bank (SARB) reiterated at the last Monetary Policy Committee meeting that inflation is under control, and kept the Repo rate unchanged at 11.0%.
The latest data released has CPI at 1.3% y-o-y (1.0% previously) with CPIX unchanged at 3.7% y-o-y. PPI increased to 1.4% versus 1.1% previously. The oil price remains high and continues to be a catalyst for higher inflation. The rand closed the month at R6.11 versus R6.43 (at the end of September) to the US greenback.
Money market rates retraced to higher levels, having previously being over-extended at lower levels after the last rate cut.
The yield on the benchmark R153 government bond was lower at 8.56%,
from 8.80% at the previous month-end.
The fund has been positioned for a flat rate cycle and the focus, over the next few months, will continue to be on medium-term assets.
CPIX is set to remain within its target range for the remainder of this year and for most of next year. The market sentiment is therefore a little more positive with a likely rate hike delayed to the second quarter of 2005. We expect rates to remain flat in the short-term and will focus on shorter-term investments.
Nedbank Money Market comment - Sep 04 - Fund Manager Comment18 Nov 2004
The South African Reserve Bank's (SARB) surprise rate cut, by 50bp to 7.50%, at their bi-monthly Monetary Policy Committee meeting caused the rand to weaken a little amidst bullish market sentiment.
The rand, having strengthened during the quarter to 5.88% (versus the US dollar), ended the quarter at 6.43 to the US greenback. The rate cut was further supported by better than expected inflation data - the latest data released has CPI at 1.0% y-o-y (0.6% previously) with CPIX at 3.7% y-o-y (versus 4.2%), and PPI increased to 1.1% versus 0.7% previously. The oil price remains high and continues to be a catalyst for higher inflation.
Market rates reacted positively to the rate cut, but may have been overextended on the downside. Money market yields ended the quarter (30 Sep 04) as follows:
- 3-month NCD 7.15% (8.05% 30 Jun 04)
- 6-month NCD 7.30% (8.25% 30 Jun 04)
- 9-month NCD 7.40% (8.70% 30 Jun 04)
- 12-month NCD 7.50% (8.90% 30 Jun 04)
- 3-month Jibar 7.25% (8.10% 30 Jun 04)
- Prime 11.00% (11.50% 30 Jun 04)
The yield on the benchmark R153 government bond was also much lower at 8.80, from 9.90% at the previous quarter.
The fund has been largely positioned for a flat rate cycle since the August rate cut and there has thus been an initial focus on more shorter-dated assets. CPIX is set to remain within its target range for the remainder of this year. The market sentiment is, therefore, a little more positive with a likely rate hike delayed to the second quarter of 2005. We expect rates to remain flat in the short-term and the focus will be on short-term investments.
Nedbank Money Market comment - Aug 04 - Fund Manager Comment20 Sep 2004
Inflation data released during the month supported the unexpected rate cut of 50bp (to 7.50%) announced by the SA Reserve Bank (SARB) at its August Monetary Policy Committee meeting. This drop in the Repo rate lead to a sharp drop in market rates and also caused the local currency to weaken.
The local currency ended the month at R6.62 (previous month-end R6.24) to the US dollar. The yield on the benchmark R153 government bond was lower at 8.86% from 9.61% in July. Money market yields ended the month (31 August 2004) as follows:
- 3-month NCD 7.30% (7.95%, 31 July 2004)
- 6-month NCD 7.45% (8.20%, 31 July 2004)
- 9-month NCD 7.60% (8.40%, 31 July 2004)
- 12-month NCD 7.75% (8.55%, 31 July 2004)
- 3-month JIBAR 7.40% (8.06%, 31 July 2004)
- Prime 11.00% (11.50%, 31 July 2004)
CPIx data was below expectation. CPIx for July was at 4.2% y-o-y from 5.0% previously, while CPI was at 1.6% y-o-y (1.2% in June). PPI decreased to 0.7% versus 1.3% in the previous month. CPIx is expected to remain range-bound (3%-6%) for the rest of this year and well into the first half of 2005. The oil price remains a threat to this. CPIx is set to remain within its target range for the remainder of this year. The market sentiment is therefore, a little more positive with a likely rate hike delayed to the second quarter of 2005.
Although the fund was not ideally positioned for a rate cut, it should absorb much of the impact in the near term. The fund will continue to be positioned for a flat rate cycle. The focus over the next few months will continue to be on medium-term assets.
Nedbank Money Market comment - Jun 04 - Fund Manager Comment24 Aug 2004
The local currency powered ahead in June ending the quarter at 6.15 (previous quarter 6.26 and a mid-term high of 7.03) versus the US Dollar. The main rally on the rand happened after the South African Reserve Bank's Monetary Policy Committee had already decided to leave the official repo rate unchanged. The outlook is a little more positive for the near-term, with a rate hike happening closer to the end of the year, which has been further assisted by better than expected inflation data. CPI for May was at 0.6% year-on-year (0.7% in February) with CPIX at 4.4% year-on-year (versus 4.8%). PPI increased to 1.2% versus -1.0% at the previous quarter-end. Oil prices have shown improvement lately and bode well for the containment of inflation.
Money market yields ended the month as follows:
- 3-month NCD 8.05% (7.95%, 31 March 2004);
- 6-month NCD 8.25% (8.15%, 31 March 2004);
- 9-month NCD 8.70% (8.35%, 31 March 2004);
- 12-month NCD 8.90% (8.60%, 31 March 2004);
- 3-month JIBAR 8.10% (8.05%, 31 March 2004);
- Prime 11.50% (11.50%, 31 March 2004).
The yield on the benchmark R153 government bond was also higher at 9.90% from 9.52%.
The fund has been largely positioned for a rising rate cycle. Initially, there has thus been a focus on more shorter-dated assets. The sentiment has now changed to a flat rate scenario in the short-term with rates rising toward the end of the year. The fund manager's have reviewed the funds strategy accordingly and increased the fund's duration.
The market sentiment is a little more positive with a likely rate hike delayed and the fund manager's expect rates to remain flat in the short-term. Opportunities to enhance the yield on the fund have been identified and are set to be implemented.
Nedbank Money Market comment - Dec 2003 - Fund Manager Comment27 Jan 2004
The South African Reserve Bank (SARB) surprised by cutting their official repo rate by only 50 basis points at the December MPC meeting, as opposed to the market expectation of 100 basis points. This drop brought the total decrease in the repo rate to 200 basis points for the quarter, and 550 basis points for 2003. Commercial banks dropped their prime overdraft rates to 11.50% from 12.00%.
The less-than-expected drop in the repo rate was based on a concern over inflation. The inflation figures though, continued to show further decline. November CPI was at 0.4% year-on-year from 1.50% and CPIX was quoted at 4.1% from 4.4%. The decline in PPI inflation was greater than expected at -2.5%, from the previous -1.8%. November broad money supply growth was higher than expected, increasing 6.8% year-on-year versus 6.2% in October.
The rand strengthened against other major currencies. The local currency reached R6.07 versus the US dollar, before ending the quarter at R6.63 (from R7.33 in the previous quarter). Following the December MPC repo rate announcement, money market rates softened to "neutral" levels with respect to the prime rate.
The yield on the benchmark R150 government bond strengthened to 7.20% from 8.42%, before weakening on the 50 basis point repo rate cut announcement. The R150 ended the quarter at 8.13%, while the R153 was at 9.04% from 9.15%.
The fund has been positioned in line with market expectations for a 100 basis point rate cut in December, and a 100 basis points in February 2004. Market rates have rebounded since the December cut, which will allow the fund manager's an opportunity to roll maturing investments at higher rates. The fund's duration is ideal for the current rate scenario.
There is an expectation of 100 basis point cut at the February MPC meeting. Money market rates are currently being rated "neutral", but are likely to react closer to the MPC meeting. The February rate cut will most likely be the last of the downward cycle, with rates remaining flat until at least the third quarter of 2004.
Going forward, the strategy will be to start reducing the fund duration by rolling maturing investments into shorter dated investments.