Multiple opposition parties united in solidarity and marched to the Union Buildings on Wednesday, as resistance against President Zuma grows.
Banking shares emerged as the main winners on the market as bond yields steadied, the overall Financial Index climbed +1.17% led by Standard Bank [JSE:SBK] +3.83%, FirstRand [JSE:FSR] +3.20%, Nedbank [JSE:NED] +2.60%, and Barclays Africa [JSE:BGA] +1.38%
The blue-chip Top 40 index closed flat -0.02% accompanied by the All Share Index which closed 0.03% firmer – the general weakness led by a 2.69% drop in the Resources Index. The Industrial Index managed to firm 0.68%, whilst the Gold Index weakened 0.82%, defying a positive rally in the gold price.
The outlook for consumer spending has faded following the downgrade of South Africa’s credit rating by both S&P and Fitch, which is expected to result in higher inflation due to the rand’s sensitivity to the dollar. Higher inflation may prompt the reserve bank to increase interest rates, further squeezing consumers.
The latest retail sales numbers for February, released on Wednesday, paints a bad picture prior to the credit ratings downgrade announced late in March. The data indicates that annual sales had contracted by -1.7%, in line with market expectations of -1.8% from -2.3% in January. The pop in February sales relative to January was expected, as consumers recover from festive season spending.
The downward pressure came from the ‘textiles, clothing, footwear and leather goods’ category where sales dropped by 7.6% on an annual basis.
The higher cost of living will put further strain on disposable income, which was already depressed by low wage growth and higher taxes.
Given the restricted money supply, along with softer consumption, the market for credit should be subdued. At the same time banks and other lending institutions will be looking to reign in unsecured credit, which will further throttle consumption spending.
The overall forecast continues to be negative and, unless there is a structural change in South Africa, retail sales growth is likely to remain weak as consumers contain spending on non-essential goods.