• All eyes will be on Greece again today as European leaders gather at an emergency summit. The summit, however, is unlikely to see Euroean leaders agreeing to restart rescue talks to keep Greece in the EMU.

  • Eurozone officials, with diminishing willingmess to negotiate with Greece, will be engaging with EU lawyers to ascertain whether the bloc could make a Grexit legal, even if only a temporary, suspension.

  • USTs weakened slightly on Monday, with the 10-year yield increasing from 2.28% on Monday to its current 2.30%. German bonds, however, were stronger, with the 10-year yield continuing to fall, from 0.79% on Friday to 0.76% on Monday.

  • The deadline for negotiations around Iran’s nuclear deal expires today. The self-imposed deadline of 30 June was been pushed back by a week. Brent crude remains nervous and is trading just below USD60.00. We would expect crude oil to come under pressure should a deal be struck.

  • The rand lost more ground on Monday. It initially went up to 12.4591 against the dollar but managed to claw back some losses, albeit only mildy, and closed the day at around 12.39. The rand is likely to remain under pressure today as Greek crisis continues to cause volatility and uncertainty.

  • The rand traded between a low of USDZAR12.3146 and a high of USDZAR12.4591. Gross reserves came in at $46.83 billion in June. The increase comes on the back of the depreciation of the dollar against major currencies and maturing foreign exchange swaps conducted for liquidity management purposes. Net reserves fell short of expectations, coming in at $41.59 billion in June.


International developments

All eyes will be on Greece again today as European leaders gather at an emergency summit. European leaders are giving Greece one last time to present its economic reforms following the results of Sunday’s referendum. The summit, however, is unlikely to see Euroean leaders agreeing to restart rescue talks to keep Greece in the EMU. We noted yesterday that prolonged bank closures and capital controls could push Greece quickly towards the point at which leaving EMU appears better than trying to stay inside. The Greek government has said all along that it wants to remain a member of EMU. It is a just a matter of time where staying in EMU seems so costly that a Grexit may be best. Eurozone officials, with diminishing willingmess to negotiate with Greece, would be engaging with EU lawyers to ascertain whether the bloc could make a Grexit legal, even if only a temporary, suspension.

Equities were hard hit yesterday following the result of the Greek referendum on Sunday. Markets in Italy, Portugal, Spain and France fell by more than 2% on the day. More significantly, 9 of the 18 western-European stock markets are down by around 10% from their 2015 highs. There is clearly some fear that contagion from the Greek anti-austerity vote is having an impact on the rest of Europe. US equity markets also fell on Monday. Asian markets, however, rebounded this morning on the back of some hope that Greece will present its economic reform to European leaders today. China’s Shanghai Composite index struggled in a volatile session.

USTs weakened slightly on Monday, with the 10-year yield increasing from 2.28% on Monday to its current 2.30%. German bonds, however, were stronger, with the 10-year yield continuing to fall, from 0.79% on Friday to 0.76% on Monday.

The deadline for negotiations around Iran’s nuclear deal expires today. The self-imposed deadline of 30 June was been pushed back by a week. Brent crude remains nervous and is trading just below $60.00/bbl at $57.00/bbl. We would expect crude oil to come under pressure should a deal be struck.

The local currency continued to lose ground on Monday. It initially went up to 12.4591 against the dollar but managed to claw back some losses, albeit only mildy, and closed the day at around 12.39. The rand is likely to remain under pressure today as the Greek crisis continues to cause volatility and uncertainty.


Local developments

SARB’s gross gold and foreign exchange reserves were released this morning. Bloomberg consensus expectations pencilled in an increase in gross reserves to $46.63 billion in June from $46.54 billion in May. Gross reserves came in at $46.83 billion in June. The increase comes on the back of the depreciation of the dollar against major currencies and maturing foreign exchange swaps conducted for liquidity management purposes. Net reserves were also expected to have increased, to $41.65 billion in June from $41.52 billion in May. In the event, net reserves fell short of expectations, coming in at $41.59 billion in June.


Markets

The rand weakened further on Monday, closing at 12.39, compared to Friday’s close of 12.32. The rand’s depreciation against the greenback occurred despite dollar weakness against some of the major currencies; the dollar posted losses against the pound (0.2%) and the yen (-0.2%), but gained ground against the euro (-0.5%). The rand lost ground against all of the major crosses; the pound (0.8%), the yen (-0.7%) and the euro (0.1%). The rand put in a mixed performance amongst the commodity currencies we monitor for purposes of this report, and put in the the third-worst performance amongst the EM currencies, only ahead of the HUF and RUB. The rand traded between a low of USDZAR12.3146 and a high of USDZAR12.4591.

Commodity prices were mixed on Monday. Gold was up by 0.2% on Monday, while copper and platinum were down by 2.9% and 1.8% respectively. Brent closed 6.8% lower, at $56.54/bbl. Both the developed world MSCI and the MSCI EM were down on Monday, by 0.9% and 2.2% respectively. The ALSI was down by 1.2% on the day. Non-residents were net buyers of equities (ZAR343 million) on Monday. The EMBI spread widened by 14 bps on Monday, while SA’s 5yr CDS widened by 3 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, increased by 1.3%.


Latest SA publications

SA Macroeconomics: SA assets underperform ahead of Greece’s ‘no’ vote: As in April, manufacturing to contract & mining to accelerate in May by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (6 July 2015)

Credit & Securitisation Weekly: Mixed fortunes for Eskom by Steffen Kriel and Varushka Singh (3 July 2015)

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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