S&P to update ratings outlook

Rand volatility may resurface this week amid a slew of economic data releases and an update from S&P Global Ratings on its SA macro and sovereign credit ratings outlook.

A negative Moody’s report on Friday, issued in response to worse-than-expected fiscal metrics announced in last week’s medium-term budget policy statement, caused the rand to weaken marginally against the dollar. Moody’s is the only ratings agency that holds an investment-grade rating for SA, but it has forecast a dire fiscal outlook and has warned that this could negatively affect the country.

S&P, which already has SA on a junk rating, will update its outlook at its annual insurance seminar on Tuesday, although ratings action is only expected in November.

However, the report from S&P may be overshadowed by employment numbers due for release as part of the thirdquarter labour force survey on Tuesday. Unemployment is expected to remain stubbornly high, as growth faltered in the second quarter when the economy contracted and tipped into recession.

FNB chief economist Mamello Matikinca said: “We are not forecasting a material deterioration”, adding that the jobless rate of 27.2% is expected to remain stable.

In data to be published on Wednesday, the September trade balance is expected to reflect a modest surplus following a surprise R8.8bn surplus in August. This would keep the year-to-date figure in the black.

Investec has forecast a surplus of R3bn. Lara Hodes, an Investec economist, said that on a trend basis the trade account averaged about R4.9bn over the past 12 months following a strong export performance due to higher commodity prices and robust global growth. These have slowed recently due to trade and geopolitical tensions. “We could therefore see the trade surplus reducing somewhat going forward.”

Another gauge of the trade environment will be the Absa purchasing managers index for October, which is expected to show little improvement when it is released on Thursday.

The index remained in negative territory in September as new sales orders continued to fall and business activity remained subdued.

Figures for October vehicle sales, due out on Thursday, are expected to show a mild recovery as a result of large discounts and incentives to move stock.

Also to be published this week are the September figures for private sector credit extension. These may show a mild deceleration following large corporate credit growth numbers in August.