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Send  Print  Share  RSS  Twitter  27 Oct 2010

The Market Maverick Daily Diary

 
SA Today: Key events to watch, Oct 27


--- Finance Minister Pravin Gordhan delivers 2010 Medium-Term Budget Policy Statement.


--- Stats SA releases Sept CPI.


--- Nu-World releases annual results.


--- GIBS hosts an evening with Anglo American plc CEO Cynthia Carroll.


WHAT TO WATCH FOR:


The National Treasury's Medium Term Budget Policy Statement (MTBPS) and CPI data will be the main focus for today.

Yesterday it was announced that the special cabinet meeting called by President Jacob Zuma to hammer out a new growth path for South Africa on Monday had set the country a target of creating five million more jobs in the next ten years.

According to Collins Chabane, the Minister in the Presidency for Monitoring and Evaluation, the new path agreed by cabinet ministers places employment at the centre of government economic policy.

"The new growth path sets a target for creating five million jobs in the next ten years. This target is projected to reduce unemployment from 35% to 15%. This employment target can only be achieved if the social partners and government work together to address key structural changes in the economy," he said.

"The macro-economic approach entails a careful balancing of more active monetary policy interventions to achieve growth and jobs targets," the minister said, "inter alia through a more competitive exchange rate and a lower cost of capital, with a more restrained fiscal stance and reprioritisation of public spending to ensure sustainability over time."

He said the Minister of Finance will elaborate on this in the MTBPS.

The G20 finance ministers' meeting at the weekend may have forced Pravin Gordhan's hand on the rand. Notoriously reluctant to talk too much about the rand, the G20, of which SA is a part, focused on exchange rates to such an extent that one analyst described it as "an unusual degree". It is thus possible Gordhan will be a lot more open on rand policy today in delivering his Medium Term Budget Policy Statement.

Among the noteworthy points at the G20 was that countries should move toward more market-based exchange rates and refrain from competitive devaluation.

In a way, the opposite effect has occurred in SA where exchange controls - designed to protect the economy when the country was in isolation - help to shore up cash and hence keep the currency artificially strong. It is not totally market based in this scenario. The OECD - of which SA wants to become a full member - is also adding pressure to drop controls as they look to standardize and harmonize tax treaties.

Now that the rand has hit three-year best levels, it is likely the government will be more than willing to drop more controls to help the currency weaken.

Bank of America Merrill Lynch said markets would be on the watch for any rand related measures amid global concerns of "currency wars".

"However, South African policymakers have projected a consistent message that they will not attempt to artificially weaken the rand. In particular, we do not expect any Brazil-type taxes on capital inflows. Rather, we expect the authorities to signal that they will continue to pursue a liberalization of exchange controls."

On the economy, Bank of America Merrill Lynch says they expect the Treasury to upgrade 2010 GDP growth from the 2.3% it predicted at the beginning of the year to close to 3.0%.

"This will likely entail a downward revision to borrowing projections with the 2010 deficit likely lowered from 6.8% of GDP to at least 6.0%."

Economist from Brait, Colen Garrow, expects the 2010/11 fiscal deficit to decline to -4.6% of GDP from -6.2% expected in February. For 2011/12 he sees it at -3.8% from -5.0% before.

However, serious concerns exist among analysts around prospects for funding the proposed National Health Insurance Scheme from 2012 - expected to cost R128 billion in its first year and to push up the health budget proportionately from 12.5% to above 14% of GDP.

In February, there were serious concerns of revenue under-runs, then around seventy billion rand.

But Investec's economists say government revenue collections will come in slightly higher than expected, mainly due to an improved economic growth outcome compared to that which Treasury initially expected at the start of the year.

"Nonetheless, it will still be below historic trends," says Investec.

And they say that from 2012/13, government expenditure could be much higher than budget estimates, due to the implementation of the National Health Insurance scheme and high wage settlements in the public sector.

Andr Roux, head of fixed income, Investec Asset Management estimates that the revised revenue for this year could exceed the budgeted R643 billion by some R45 billion.

"This enormous improvement is largely due to the expected outperformance of corporate tax by some R20 billion and VAT by roughly an equal amount. The other revenue items have also been solid, but the budget technicians managed to get those estimates closer to the mark," he says.

Roux believe the Minister will have "some surprises in store" on the exchange control front and "we may see significant steps to ease exchange controls with regard to companies and banks".

Individual allowances could move up quite significantly and there is a small chance that prudential limits on institutions may be raised.

"Exchange control relief will not satisfy all the political constituencies of the ANC, but it is nonetheless the one thing that the Minister can do here and now to bring some relief to the capital account pressures on the rand," says Roux.

Another aspect to keep in mind is that the Minister may also release a revised draft of Regulation 28 Guidelines. These are the rules that govern the investment portfolios of the pension fund industry, and will be a focal point of the MTBPS for institutions and investment managers.

The Minister delivers his mini-Budget at 14:00.

The consumer inflation index - the measure used by the South African Reserve Bank (SARB) for its inflation target - is expected to decrease to 3.4% year-on-year (y/y) in September, according to a survey of leading economists by I-Net Bridge.

Forecasts among the nine economists ranged from 3.3% to 3.8%.

The CPI data will be released at 11:30.



ON THE HORIZON:


Oct 28: Stats SA releases Sept PPI.

Oct 28: Comair holds AGM.

Oct 28: Coal of Africa releases Q1 results.

Oct 28: Skills development summit until Oct 29.

Oct 28: Standard Bank hosts media briefing.

Oct 28: Trans Hex releases interim results.

Oct 29: Weekly Treasury Bill auction.

Oct 29: SARB releases Sept M3 and PSCE.

Oct 29: SARS releases Sept trade data.

Oct 29: Treasury releases Sept statement of revenue, expenditure and borrowing.

Oct 29: Brait releases interim results.

Oct 29: Namakwa Diamonds releases final results.

Oct 30: No events scheduled.

Oct 31: No events scheduled.

Nov 1: Harmony releases Sept quarter results.

Nov 1: Kagiso PMI for October.

Nov 1: SARA Rail conference until Nov 3.

Nov 2: Standard Bank October residential property gauge.

Nov 2: NAAMSA releases October vehicle sales.

Nov 2: Treasury releases October provisional financing figures.

Nov 2: Weekly government bond auction.

Nov 2: NAAMSA holds quarterly sales results presentation.

Nov 2: Wilderness Holdings releases interims.

Nov 3: MillerCoors releases trading update.

Nov 3: Capital Shopping Centres releases Interim Management Statement.

Nov 4: Stats SA releases September electricity generated.

Nov 4: Future directions in Business 2010 conference until Nov 5.

Nov 4: Gold Fields releases Q1 2011 results.

Nov 4: Foschini releases interim results.

Nov 4: Truworths holds AGM.

Nov 4: SARB hosts financial stability conference until Nov 5.


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