FX

Money supply and credit extension data was released this morning. Money supply growth fell to 7.24% y/y in June, from 7.59% y/y in May. The y/y change was less than consensus expectations of 7.33% growth. PSCE growth climbed to 8.69% y/y in June from 8.34% y/y in May. Analysts had expected a mild deceleration in PSCE growth to 8.10% y/y. The mild acceleration in the headline PSCE number was largely driven by credit extended to corporates. Growth of credit extended to households did improve, although only marginally, from 4.30% y/y in May to 4.32% y/y in June. There is some ambiguity in terms of the currency implications due to the linkages between PSCE, domestic demand, import demand and the current account. However, we feel that the consequences of these numbers for the currency should be understood largely via their implications for interest rates, especially in what they signal regarding household borrowing. In this regard, the numbers are not particularly convincing as evidence of improving credit growth. Consequently, although the headline PSCE figure is slightly stronger, we would still see the numbers as largely interest-rate-favourable and thus possibly rand-negative.

Official unemployment data for Q2:14 will be published today. Consensus has the unemployment rate climbing slightly to 25.4% from 25.2% in Q2:14. Manufacturing (12% of total employment) emerged as the key positive contributor to jobs in Q1:14. However, SBGS economist Kim Silberman points out that this resilience is likely to be tested, with manufacturers responding to the Q2:14 Manufacturing Survey indicating subdued employment conditions, with average hours worked per factory worker having fallen sharply (typically a negative precursor to employment levels). In addition, employment PMI averaged 43.7 in Q2:14 from 50.2 in Q1:14. Similar sentiments were gauged from respondents to the BER’s Q2:14 Retail Survey. While having improved moderately, a net majority of retailers continue to indicate softer employment. Wholesalers also reported improved but still negative employment trends, boding ill for a trade sector (21% of total) that shed jobs in Q1:14.

The rand weakened against the dollar yesterday, closing at USDZAR10.56, compared with Friday’s close of USDZAR10.51. Local currency depreciation occurred alongside a mixed performance from the dollar against the major crosses. The rand depreciated in tandem with a mostly weaker performance from the commodity and EM currencies we monitor for the purposes of this report. The dollar weakened against the pound and the euro, while strengthening against the yen. Three of the five commodity currencies we monitor – namely the NZD, the NOK and the ZAR – depreciated on the day. The remaining two currencies – namely the CAD and the AUD – appreciated on the day. All but three of the EM currencies we monitor for the purposes of this report depreciated on the day. The exceptions were the BRL and the THB, both of which appreciated, as well as the IDR which remained unchanged. The rand was the worst-performing currency in the commodity currencies category and the second-worst-performing currency in the EM currencies category (beating only the RUB). The rand traded between a low of USDZAR10.4885 and a high of USDZAR10.5864. Support from where the rand opened this morning sits at 10.5650, 10.4850, 10.4560 and 10.4025. Resistance levels sit at 10.6500, 10.7400 and 10.8500.

Turning to commodity prices, Brent, gold and copper fell by 0.8%, 0.2% and 0.1% respectively. Platinum meanwhile rose by 0.6%. The ALSI rose by 0.7% and the EM MSCI rose by 0.1%. The EMBI spread widened by 2 bps and the SA CDS 5yr spread widened by 4 bps. The CBOE VIX index, a volatility proxy for global risk appetite/aversion, fell by 1.0%.

Non-residents were meaningful net sellers of local equities (-ZAR855 million) and were mild net sellers of local bonds (-ZAR288 million) on the day. Selling was seen in the 7-12 (-ZAR266 million) and 12+ (-ZAR243 million) year buckets. Buying was meanwhile seen in the 3-7 (ZAR201 million) and 1-3 (ZAR21 million) year segments. Bond yields rose by between 1 bp (R203) and 3 bps (R186 and R214) on the day. The 6x9 and 12x15 FRAs rose by 1 bp and 2 bps, respectively; while the 3x6 FRA remained unchanged.

In local labour news, the strike in the metal and engineering industries sector ended yesterday after both Numsa and Solidarity accepted a wage offer from employers’ body Seifsa. Workers will return to work from today. The new agreement contains a three-year agreement with 10% annual wage increases for the lowest-earning employees. Irvin Jim, Numsa general secretary, said yesterday, “[w]e are pleased to inform the public and the country at large that the latest offer is a product of sweat and bitter struggles by our toiling workers for a living wage. The settlement offer has been overwhelmingly and unanimously accepted by our members. This is a massive victory given the pittance offer at the point of deadlock. For this we salute metalworkers.” Meanwhile, employers’ body Neasa said, “[i]n view of the fact that unions refused to address Neasa’s demands in these negotiations, Neasa employer members may continue to lock out workers who engaged in the strike. This arrangement will continue until Neasa’s demands are met”. The resolution of the strike should be viewed as rand positive in that it might serve to ease any anxieties regarding trade deficit compression, as well as perhaps allay rising concerns over the country’s growth prospects.


FI

The local FI market weakened overall as yields rose by between 1.50 bps and 3.50 bps across the local curve yesterday; this occurred on the back of both the weaker rand and rising US Treasury yields, and resulted in a steeper front-end and belly of the curve, while the long-end remained unchanged. The yield on the R157 rose by 1.50 bps to 6.65%, along with the yields on the R203 and R204 which also rose by 1.50 bps each to 7.06% and 7.35% respectively. The yield on the R186 rose by 3.00 bps to 8.21%. The longest-dated R2048 also rose by 3.00 bps to a yield of 9.02%, and the slightly shorter-dated R2044 rose by 3.50 bps to (also) 9.02%. The bond has only been auctioned twice so far, and, therefore, the yield still has a degree of illiquidity attached to it. At today’s nominal government bond auction, NT has ZAR350m on offer in the R2044, ZAR1.10bn in the R2030 and ZAR900m on offer in the R2032.

The front-end and the belly of the yield curve steepened marginally yesterday, while the back-end of the curve remained unchanged. At the front-end, the spread on the R186/R157 widened by 1.50 bps to 155.50 bps; the spread on the R213/R186 at the belly widened by 0.50 of a bp ending the day at a spread of 46.00 bps; and at the back-end, the spread on the R2048/R186 ended the day unchanged from the prior day’s spread of 81.00 bps. Total SAGB turnover fell significantly yesterday, to ZAR4.34bn from ZAR12.34bn on Friday. ZAR4.24bn of yesterday’s turnover was due to nominal SAGBs, and 38% of this turnover was recorded in the R186.

USDZAR depreciated yesterday, by 5c to 10.56, delivering the second-worst performance across the EMs we monitor for the purposes of our reports, and behind a significant depreciation in the Russian ruble on the back of ongoing geopolitical tensions and financial market instability. US Treasury yields weakened across the curve yesterday. At the short-end, the yields on the 2yr and 5yr USTs rose by 1.23 bps and 3.16 bps respectively, to 0.50% and 1.70%. At the longer-end, the yields on the 10yr and 30yr notes rose by 1.98 bps and 1.62 bps, to 2.49% and 3.25% respectively.

Non-residents were net sellers of nominal SAGBs yesterday, for a total of -ZAR288m. The only notable inflows were recorded in the R203 (+ZAR165m) and R208 (+ZAR79m) in the 3-7 year segment, and the R2037 (+ZAR80m) in the 12+ year segment. Meaningful outflows were meanwhile seen in the R2023 (-ZAR266m) in the 7-12 year segment, and the R186 (-ZAR185m) and R209 (-ZAR87m) in the 12+ year segment.

Compared with the EM FI and currency markets that we monitor for the purposes of our reports, SA performed poorly against EMs on both fronts. EM FI markets weakened on average, and were again pulled lower by the sell-off in Russia’s financial markets (both bonds and currency). 5yr EM bond yields rose by 2.53 bps on average, and 10yr yields rose by 0.19 of a bp on average. Russia’s 5yr yield recorded the worst performance, with the yield rising by 10.58 bps on the day, while the 10yr yield recorded the second-worst performance, with the yield rising by 7.34 bps, behind an even weaker performance by Brazil’s 10yr yield, which rose by 7.60 bps. SA’s 5yr yield rose by 2.30 bps yesterday (performing slightly better than the EM average), and the 10yr yield rose by 2.70 bps (performing worse than the EM average). India’s 10yr yield strengthened significantly yesterday, skewing the average in this longer tenor, with the yield having declined by 23.90 bps on the day. In contrast, its 5yr bond sold-off, rising by 3.30 bps.

The rand depreciated by 0.49% yesterday, delivering the second-worst EM currency performance for the day. The only other EM currency we monitor for the purposes of our reports to appreciate by more was the Russian ruble (1.02%), which led the moves weaker. Other EM currencies to depreciate yesterday were the Mexican peso (0.46%), Turkish lira (0.24%), Hungarian forint (0.07%) and Indian rupee (0.05%). EM currencies to appreciate on the day were the Brazilian real (0.33%), Thai bhat (0.13%) and Polish zloty (0.09%).


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