US employment key data today

Greece and its referendum will take a back seat as markets await the US non-farm payrolls numbers today. Bloomberg consensus pegs the number of non-farm jobs created in June at 233K down from 280K in May. While the headline numbers will always attract attention, the focus also is on the m/m change in the hourly earnings, which is expected to come in at 0.2%, marginally down from the 0.3% in May.
US treasuries have erased almost all gains since the news broke at the weekend about the Greece referendum, with the 10-year yield back at 2.42% this morning.
As far as Greece is concerned, creditors indicated there would be no further negotiations regarding a bailout deal until after the referendum on Sunday.
From a risk appetite perspective, yesterday was another positive day for international markets, with most of the major equity indices starting Q3:15 on a positive note. This positive momentum is spilling over into Asian markets today.
On the local front, the BER’s release of the June PMI saw the manufacturing sector’s performance performing ahead of expectations. The June PMI increased to 51.4 pts from 50.8 pts in May.
With the US on holiday tomorrow, we would look for markets to steadily wind down following the US non-farm payrolls data later today. Tomorrow may be a quiet trading day in domestic markets.
Support for the USDZAR is at 12.05 and 12.08, with the 11.88/90 level being a critical support level. Resistance is at 12.28 and 12.43.

International developments

Greece and its referendum will take a back seat today as markets await the US non-farm payrolls numbers today. The US non-farm payrolls data for June is released a day earlier this month due to Independence Day holiday in the US tomorrow. Bloomberg consensus pegs the number of non-farm jobs created in June at 233K down from 280K in May, but still well above the 200K number generally seen as enough to steadily reduce slack in the labour market.

While the headline numbers will always attract attention, the focus also is on the m/m change in the hourly earnings, which is expected to come in at 0.2%, marginally down from the 0.3% in May. Stronger hourly earnings could increase demand and by implication inflation in the US economy. The labour market remains one of the key focus areas of the US Fed in determining the timing of their interest rate hike. The Fed funds futures now assigns almost a 70% probability to a Fed funds rate between 0.25% and 0.50% in September.

US treasuries have erased almost all the gains since the news broke about the Greece referendum over the weekend, with the 10-year yield back at 2.42% this morning. We would expect bonds to come under further pressure should the US employment data surprise on the upside.

As far as Greece is concerned, creditors indicated there will be no further negotiations regarding a bailout deal until after the referendum on Sunday despite Greece’s Prime Minster indicating they are still willing to accept the last deal proposed a week ago with only minor changes.

From a risk appetite perspective, yesterday was another positive day for international markets with most of the major equity indices starting Q3:15 on a positive note. This positive momentum is spilling over in Asian markets today. The only laggard remains Chinese equities with the Shanghai Composite and the Shenzhen Composite both in the red again.

The negotiations between around Iran’s nuclear deal also continues. The self-imposed deadline of 30 June has been pushed back by a week to 7 June. Brent crude is trading just above USD62.24.

With the US on holiday tomorrow we would look for markets to steadily wind down following the US non-farm payrolls data later today. Tomorrow may be a quiet trading day in domestic markets.

Support for the USDZAR is at 12.05 and 12.08 with the 11.88/90 level being a critical support level. Resistance is at 12.28 and 12.43.

Local developments

The BER’s release of the June PMI saw the manufacturing sector’s performance performing ahead of expectations. The June PMI increased to 51.4 pts from 50.8 pts in May and against Bloomberg consensus expectations of a slippage to 50.2 pts. The 0.6 pts increase in the index was supported by the business activity index, which increased above the 50-benchmark line for the first time since January this year. This sub-component increased to 51.7 pts in June from 49.6 pts in May.

The employment sub-component also increased in June and edged closer to the 50 pts mark, at 48.7 pts in June from 45.2 pts in May. The BER finds that a sustained increase in output (business activity) has to be achieved before any meaningful increase in employment can occur. Demand, as gauged by the new sales orders sub-index declined 0.5 pts to 51.7 pts, after rebounding strongly in May. The BER noted that while domestic demand remains under pressure, some respondents indicated that they benefited from improved export orders. Discouragingly, purchasing commitments declined sharply, to 45.8 pts in June from 50.7 pts in May.

While there are tentative positive signs in the PMI data, our Economist, Kim Silberman, notes that the leading PMI measure, which recovered significantly in May, declined in June and its 3mma continues to trend lower.

Naamsa vehicle sales data reported for June surprised on the downside. Vehicles sales growth undershot epxectations, coming in at -4.8% y/y in June from -3.2% y/y in May. A total of 50,521 vehicles were sold in June, compred to 47,868 vehicles sold in May. New passenger car sales declined further in June, by 6.6% y/y from a decline of 5.4% y/y in May. Medium commercial vehicles, heavy and extra heavy commercial vehicles as well as buses declined in June, with only sales of light commercial vehicles reporting a y/y increase during the month. LCV sales increased by 1.5% y/y in June,albeit down from 2.2% y/y in May. Vehicle export growth fell to 33.8% y/y in June from a stellar 114.2% y/y in May, with 31,422 vehicles exported in June. This compares with 33,411 vehicles exported in May.

The BER’s Consumer Confidence Index is due for release today at 12h00. The confidence measure for Q2:15 is expected to have remained in the red, at -4 pts (Bloomberg consensus epxectations) from -4 pts in Q2:15.

Markets

The rand weakened on Wednesday, closing at 12.25, compared to Tuesday’s close of 12.16. The rand’s depreciation against the greenback occurred in line with dollar strength against all of the major currencies; the dollar posted gains against the euro (-0.8%), the pound (-0.6%) and the yen (0.6%). The rand lost ground against most of the major crosses; the yen (-0.2%) and the pound (0.1%), but gained ground against the euro (-0.2%). The rand put in the second-best performance amongst the commodity currencies we monitor for purposes of this report, only behind the NZD and put in the third-worst performance amongst the EM currencies, only ahead of the RUB and BRL. The rand traded between a low of USDZAR12.1470 and a high of USDZAR12.2787.

Commodity prices were mixed on Wednesday. Platinum and copper were both up by 0.2% on Wednesday while gold was down by 0.3% on the day. Brent closed 2.5% lower, at $62.01/bbl. The developed world MSCI was up by 0.7% while the MSCI EM was down fractionally on the day. The ALSI was up by 0.2% on Wednesday. Non-residents were net buyers of equities (ZAR657 million) on Wednesday. The EMBI spread narrowed by 9 bps on Wednesday, while SA’s 5yr CDS narrowed by 2 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 11.7%.

Latest SA publications

SA Macroeconomics: PMI rose from 50.8 to 51.4: Activity & employment improve but new orders decline by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (1 July 2015)

Credit & Securitisation Special Report: African Bank H1:15 results – more of the same by Steffen Kriel (1 July 2015)

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)

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