Rand gains on good SA trade data

Greece has defaulted; it failed to make the €1.5 billion IMF payment yesterday. The IMF noted that it has “informed our executive board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared”. Significant pressure is now on the Greek Prime Minister, Alexis Tsipras, for a compromise as Greece falters under capital controls.
The rand gained ground yesterday despite Greece’s woes. The rand gained ground on better-than-expected SA trade data; the trade balance has swung into surplus for the first time this year: ZAR5.0 billion in May, from a revised -ZAR1.4 billion in April.
The rand strengthened on Tuesday, closing at 12.16, compared to Monday’s close of 12.24. The rand traded between a low of USDZAR12.1195 and a high of USDZAR12.2822. Support for the USDZAR is at 12.1350, 12.0500, 11.9800 and 11.8800; resistance is at 12.2100, 12.2800, 12.4050 and 12.5000.
The US ADP employment report for June is due for release today and is likely to shed further light on the labour market ahead of the NFP report tomorrow (a day early because of the Independence Day holiday). Bloomberg consensus is pencilling in an improvement in employment to 218k in June from 201k in May. The NFP report, however, according to consensus expectations, is for a decline in non-farm payrolls to 230k in June from 280k in May.
The BER’s PMI measure for June is scheduled for release at 11h00. Bloomberg consensus is for a slight slippage to 50.2 pts from 50.8 pts in May. Naamsa’s release of the June vehicle sales, also today, is also not likely to be encouraging. Vehicle sales growth is expected to remain in negative territory, with growth expected at -3.0% y/y in June from -3.2% y/y in May

International developments

Greece has officially defaulted as it failed to make the €1.5 billion IMF payment yesterday. The IMF noted that it has “informed our executive board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared”. Significant pressure is now on the Greek Prime Minister, Alexis Tsipras, for a compromise as Greece falters under capital controls. The 11th hour request for a new rescue package was denied by German Chancellor Angela Merkel. European leaders are now waiting in earnest for the 5 July referendum, which could see the ECB providing some support to the ailing Greek economy.

The rand gained ground yesterday despite Greece’s woes. The local currency gained ground on better-than-expected SA trade data, which saw the trade balance swing into surplus for the first time this year. It initially went up to 12.28 against the dollar but managed to claw back losses, and closed the day at around 12.16. Although the rand is steady, tactically we would continue to approach the currency from the short side against the dollar. Support for the USDZAR is at 12.1350, 12.0500, 11.9800 and 11.8800; resistance is at 12.2100, 12.2800, 12.4050 and 12.5000.

Bonds continued to benefit from the uncertainty and volatility borne of the Greek crisis. The US 10-year bond yield, while slightly up from 2.31% at the beginning of the week, to 2.35%, its still below 2.47% on Friday. German bonds were also stronger yesterday, with the 10-year yield continuing to fall, from 0.92% on Friday to 0.76% on Tuesday.

The US ADP employment report for June is due for release today and is likely to shed further light on the labour market ahead of the NFP report tomorrow (a day early because of the Independence Day holiday). Bloomberg consensus is pencilling in an improvement in employment to 218k in June from 201k in May. The NFP report, however, according to consensus expectations, is for a decline in non-farm payrolls to 230k in June from 280k in May. The June report is critical to monetary policymakers’ decision for “lift-off”. We maintain that the Fed is likely to start raising rates in September.

Local developments

The SARB’s release of both the May M3 and PSCE surprised on the upside. Growth in M3 came in above Bloomberg consensus epxectations of a moderation to 8.0% y/y, registering at 8.37% y/y from 8.38% y/y in April. Growth in PSCE also came in above expectations of a slowdown to 9.31% y/y in May from 9.35% y/y in April. PSCE growth increased to 9.53% y/y in May, higher than the 9.1% average of the past five months. PSCE growth was supported by corporate credit rather than household credit. Corporate credit increased sharply to 16.2% y/y in May, up from 15.4% y/y in April. All categories of corporate credit increased except credit cards, leasing finance and overdrafts. Growth in household credit continued slowing in May, to 3.2% y/y from 3.3% y/y in April. Our Economist, Kim Silberman, believes that household credit growth will remain subdued for an extended time as consumers continue to repair household balance sheets as the spread between real disposable income and real household credit growth still suggests that household deleveraging continues.

The much anticipated preliminary trade balance data, also out yesterday, saw the trade balance swing into surplus territory for the first time this year. The trade balance came in at ZAR5.0 billion in May from a revised -ZAR1.4 billion in April (previously -ZAR2.5 billion). Exports increased by 4.6% m/m to ZAR88.9 billion in May from ZAR84.9 billion in April while imports declined by 2.9% m/m to ZAR83.9 billion in May from ZAR86.4 billion in April.

On a YTD basis, the trade balance is -ZAR29.8 billion compared to -ZAR46.9 billion in the comparable period in 2014. Kim expects base effects and the lower oil price to continue benefitting the trade account positively in Q2:15. However, these effects will fade over the course of the second half of this year. Only then will we have a chance to see whether the effects of the weaker currency and lower growth can act to structurally narrow the trade deficit.

The BER’s PMI measure for June is scheduled for release at 11h00. The Bloomberg consensus is for a slight slippage to 50.2 pts from 50.8 pts in May. Naamsa’s release of the June vehicle sales, also today, is not likely to be encouraging. Vehicle sales growth is expected to remain in negative territory, with growth expected at -3.0% y/y in June from -3.2% y/y in May.

Markets

The rand strengthened on Tuesday, closing at 12.16, compared to Monday’s close of 12.24. The rand’s appreciation against the greenback occurred despite dollar strength against some of the major currencies; the dollar posted gains against the euro (-0.8%) and the pound (-0.2%), but lost marginally against the yen. The rand gained ground against all of the major crosses; the euro (-1.4%), the pound (-0.8%) and the yen (0.5%). The rand put in the best performance amongst the commodity currencies we monitor for purposes of this report, and put in the third-best performance amongst the EM currencies, only behind the TRY and RUB. The rand traded between a low of USDZAR12.1195 and a high of USDZAR12.2822.

Commodity prices were mixed on Tuesday. Gold and copper were down on Tuesday, by 0.6% and 0.4% respectively. Platinum was down by 0.2% on the day. Brent closed 2.6% higher, at $63.59/bbl. The developed world MSCI was down by 0.1% while the MSCI EM was up by 1.3% on the day. The ALSI was down by 0.5% on the day. Non-residents were net buyers of equities (ZAR4.823 billion) on Tuesday. The EMBI spread narrowed by 3 bps on Tuesday, while SA’s 5yr CDS narrowed by 2 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 3.3%.

Latest SA publications

SA Macroeconomics: May private credit 9.5% y/y: Corporate credit up 16.2% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (30 June 2015)

Credit & Securitisation Special Report: NERSA rejects selective reopener in favour of a full reopener & RCA claw-backs by Steffen Kriel and Kim Silberman (30 June 2015)

SA Macroeconomics: NERSA rejects Eskom's re-opener: Implications by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (30 June 2015)

SA Macroeconomics: Nersa decides on tariffs today: Greece to dominate EM assets by Kim Silberman and Steffen Kriel (29 June 2015)

SA FIC Weekly: Eskom, Greece in focus; revised wage deal has important policy implications by Walter de Wet and Shireen Darmalingam (29 June 2015)

Credit & Securitisation Weekly: Crunch time by Steffen Kriel and Varushka Singh (26 June 2015)

Credit & Securitisation: Eskom's selective reopener by Steffen Kriel and Kim Silberman (26 June 2015)

SA Macroeconomics: The timing of Eskom's tariff increase will significantly impact CPI and the MPC's decision: We await NERSA's decision on Monday June 29th by Kim Silberman and Steffen Kriel (26 June 2015)

Credit & Securitisation Weekly: Crunch time by Steffen Kriel and Varushka Singh (26 June 2015)

Credit & Securitisation: Eskom's selective reopener by Steffen Kriel and Kim Silberman (26 June 2015)

SA Macroeconomics: The timing of Eskom's tariff increase will significantly impact CPI and the MPC's decision: We await NERSA's decision on Monday June 29th by Kim Silberman and Steffen Kriel (26 June 2015)

SA Macroeconomics: May PPI rises to 3.6% from 3.0%: Food, beverages and petrol contribute to the acceleration by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (26 June 2015)

SA Macroeconomics: CAD narrows to a better than expected 4.8% of GDP: Trade deficit widens but dividend receipts rise by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 June 2015)

SA Macroeconomics: The CAD is anyone’s guess, ours is 4.8% of GDP: Portfolio flows to EMs falter by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (22 June 2015)

SA FIC Weekly: The three risks ever clearer - evolution of the main risks to the SARB’s inflation forecast by Walter de Wet and Shireen Darmalingam (17 June 2015)

Credit & Securitisation Weekly: Medupi update by Steffen Kriel and Varushka Singh (19 June 2015)

SA Macroeconomics: Retail sales surprises to the upside at 3.4% y/y in April: YTD retail outperforms 2014 by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (17 June 2015)

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