*In too deep for a rate cut rescue!

From Gareth Stokes, MoneyWeek editor, SA

Dear MoneyMorning reader

We don’t envy Reserve Bank governor Tito Mboweni one bit. He’s stuck between the proverbial ‘rock’ and ‘hard place’ where interest rates are concerned. If he calls an emergency Monetary Policy Committee meeting and cuts rates by 100 basis points the pundits will scream “it’s not enough!” If he cuts rates by 2% he’ll get it in the neck for waiting too long before making decisive action. And if he does nothing, the condemnation will be swift and unequivocal. What analysts should be asking is whether the cut we’re begging for will make any difference at all? It’s potent medicine; but it needs time to work its magic.

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Forget the ‘boom times’ that bolstered the recent labour force survey, says Standard Financial Markets. They warn that “ancillary data from the manufacturing and automotive sectors” point to great risks that lie ahead. Their Weekly Preview for South Africa includes this gem: “economic data are pointing to increasing synchronisation of global economic activity!” Unless we’ve lost something in translation we expect they mean that South Africa is going to feel the hurt from the global economic slowdown for some time. Manufacturing – exports – household demand – everything that can be measured is already in steep decline.

Mining and manufacturing numbers due this week should confirm the trend. Economists expect manufacturing to contract 6.4% yearon- year in January 2009, following the 7% slump in December last year. South Africa will probably continue its slide down the rankings of world gold producers while other base and precious metal miners trim output on the back of falling demand and prices. It’s time for you to set aside these speculative measures of economic health and focus on some real-world financial results instead.

Two of South Africa’s Top 40 listed companies reported recently. Standard Bank showed a 13% decline in turnover with headline earnings per share 3% softer. Although analysts weren’t too disappointed the share price did absolutely nothing. You can’t help but feel that management’s – “confidence in financial markets is unlikely to improve in the short-term” – warns of future struggles rather than excusing the past. The group topped its results by announcing a $200m convertible loan to Russian bank Troika Dialog. It will own 33% of the merged entity formed out of Troika and VOA Standard Russia. Check out MoneyWeek’s take on the deal!

Petrochemicals giant Sasol is less upbeat. The excitement generated by the 51% increase in first half earnings evaporates when you realise the R21.92 per share is the best investors will see for quite some time. The group warned shareholders to expect a reduction in full year 2009 earnings and chief financial officer Christine Ramon said Sasol was in “cash conservation mode.” Against the backdrop of weak oil prices the company cut its dividend and “renewed its focus on cost containment, improving operational efficiencies, working capital improvement and capital expenditure reprioritisation.” Sasol will reduce capital expenditure by some 40% over the next three years.

And they’re not the only resource giant to take this decision. Anglo American also cut its investment budget on softer global resource demand. The reduction in private investment will place more pressure on the domestic economy… You’d better top up your defensive portfolio to weather the storm.

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Turning to the markets...

The JSE All Share Index closed up 3.1%. The Gold Mining Index slipped 0.19%. Resources added 3.4%. Banks and Financials closed in the black 2.13% and 1.97% respectively. Industrials increased 2.48% and the Platinum Mining Index added 3.03%.

London’s FTSE 100 closed positively 1.12%. The Dow Jones is up 0.75% and the Nasdaq followed 0.38%. Tokyo’s Nikkei gained 2.28% and Hong Kong’s Hang Seng closed up 0.96%.

Brent crude is currently trading at $44.71 per barrel.

Spot gold’s trading at $926.30 and platinum was last quoted at $1 063.00.

And here’s how the rand is performing against the major currencies:

R/$ 10.01
R/£ 14.02
R/€ 12.90

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