Asian markets trading ahead of the JSE’s opening on Thursday morning took their cue from the US where the S&P 500 and Nasdaq indices reached fresh records on Wednesday.
This year’s strong run by the US’s “Fang stocks” — Facebook, Amazon, Netflix and Google-parent Alphabet — saw an S&P index of the 60 largest technology groups overtake a record set in 2000 before the dot-com bubble burst.
Tokyo’s Topix index was 0.65% higher and its Nikkei 225 index was 0.58% higher at 7am. Sydney’s S&P/ASX 200 index was 0.52% higher.
Thursday is a busy day for central banks. Besides South African Reserve Bank governor Lesetja Kganyago’s interest rate announcement at 3pm, the Bank of Japan (BoJ) at 5am local time announced it was leaving its rate at -0.1% and the European Central Bank (ECB) will announce at 1.45pm local time whether it is leaving its rate unchanged at zero.
Although Wednesday’s news that inflation, as measured by the consumer price index (CPI), slowed to 5.1% in June from 5.4% May raises hopes the Reserve Bank’s monetary policy committee will vote to cut interest rates, economists believe this is unlikely before it slows to 4.5% — the centre of SA’s 3%-6% target range.
“The latest inflation figures as well as the outlook for inflation for the remainder of the year will increase speculation of an early easing in monetary policy. The key obstacle is the concern that a possible local [credit] downgrade could lead to renewed rand weakness and an immediate policy reversal. We think that the [monetary policy committee] will keep rates on hold until at least September, with more probable easing in early 2018,” Nedbank’s economic team said in an e-mail on Wednesday.
“The next few interest rate decisions by the [monetary policy committee] are not going to be easy and the rate outcome will probably remain a close call, but on balance we expect the Reserve Bank to cut rates twice by 25 basis points each over the next six to nine months,” Stanlib chief economist Kevin Lings said.
Invested Bank economist Kamilla Kaplan said she expected the monetary policy committee to lower its expected inflation average for 2017 to 5.7% and for 2018 to 5.3%, rising again to 5.5% in 2019.
“With the Reserve Bank’s focus on the longer-term inflation profile, it is probable that its 18-24 month CPI forecasts would need to decrease towards the midrange of the target range before policy easing is considered,” Kaplan said.