Standard Bank Research Team
Standard Bank
Markets continue to rebound from the sell-off seen earlier this week, with both Asian and US markets trading higher yesterday. This morning that momentum is continuing, with the Shanghai Composite in positive territory, up 1.8% at the time of writing.
The Asian markets took their cue from strong trading on the US markets but were also supported by better-than-expected data out of Japan. Core inflation for July y/y was flat; economists had expected -0.2%.
US Q2:15 GDP growth was revised to 3.7% q/q (saar) from 2.3% q/q (saar). These are strong growth numbers and would definitely put the possibility of a rate hike in September back on the cards.
Perhaps the most noteworthy move in markets yesterday is the sharp rebound in crude oil prices, with Brent crude oil jumping over 10% to above $47/bbl. The rise in oil comes amid greater growth optimism and risk appetite, rather than any fundamental change in the oil market.
Volkswagen South Africa (VWSA) announced yesterday that the company will invest over R4.5 billion into its SA operations in Uitenhage over the next two years. This news was particularly encouraging as the vehicle industry continues to slow. The investment over the next two years will see VWSA expand its line with the introduction of up to three new models.
International developments
Markets continue to rebound from the sell-off seen earlier this week, with both Asian and US markets trading higher yesterday. This morning that momentum is continuing, with the Shanghai Composite in positive territory, up 1.8% at the time of writing. Other Asian indices, the Shenzhen Composite is up 1.8%, the Japanese Nikkei is up 2.7%, and the Hong Kong Hang Seng is up 0.5%. The S&P Index continues to rebound and was 2.4% up at the time of writing, while the Dow Jones was up 2.3%.
The Asian markets took their cue from strong trading on the US markets but were also supported by better-than-expected data out of Japan. Core inflation for July y/y was flat; economists had expected -0.2%.
US Q2:15 GDP growth was revised to 3.7% q/q (saar) from 2.3% q/q (saar). These are strong growth numbers and would definitely put the possibility of a rate hike in September back on the cards. We continue to expect a rate hike in December. The adjustment in growth was partly due to inventory build, but overall all major components in the economy are performing well. This is in stark contrast to South Africa’s growth figures for Q2:15 which came in at -1.3% q/q (saar). The large negative growth differential between South Africa and the US is rand-negative and may make the rand even more volatile ahead of a Fed hike.
Perhaps the most noteworthy move in markets yesterday is the sharp rebound in crude oil prices, with Brent crude oil jumping more than 10% to trade above $47/bbl. The rise in oil comes amid greater growth optimism and risk appetite rather than any fundamental change in the oil market. Other commodities have jumped higher, alongside oil, with most base metals as well as platinum trading higher on the day.
On the international data front, we look to the personal income and spending data out of the US; both are likely to have increased in July. Also, the University of Michigan will release the final numbers for August’s 1-year and 5-year inflation expectations.
Local developments
Stats SA released July PPI yesterday; the data undershot expectations. Bloomberg consensus had forecast an increase to 3.8% y/y in July from 3.7% y/y in June. In the event, PPI came in at 3.3% y/y in July. On a m/m basis, PPI slowed to 0.2% in July from 0.3% in June and against expectations of an increase to 0.6%.
Volkswagen South Africa (VWSA) announced yesterday that the company will invest over R4.5 billion into its SA operations in Uitenhage over the next two years. This news was particularly encouraging as the vehicle industry continues to slow. The investment over the next two years will see VWSA expand its line with the introduction of up to three new models, destined for both the local and export markets. Of the total investment, R3 billion would be allocated to production facilities and quality, about R1.5 billion to local supplier capacity and around R22 million would be allocated to the development and training of employees. While SA is not the preferred production location for the motor industry, VWSA noted that its “strategic location and the potential of Africa as a future market for exports, as well as the security that the [Department for Trade and Industry’s (DTI’s)] Automotive Production and Development Programme (APDP) provides investors, ongoing investment in our [VWSA] vehicle market manufacturing base makes sense”. The DTI has also noted and assured that the APDP programme would continue beyond 2020.
Imperial Motors (importers of Hyundai and Kia vehicles) added to the good news yesterday, saying that it was considering establishing a manufacturing plant in South Africa to produce Hyundai passenger cars.
Markets
The rand weakened, albeit marginally, on Thursday, closing at 13.14, compared to Wednesday’s close of 13.13. 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 yen (0.9%), the euro (-0.6%) and the pound (-0.4%). The rand strengthened against all of the major crosses; the rand gained ground against the yen (0.8%), the euro (-0.5%) and the pound (-0.2%). The rand put in the worst performance amongst the commodity currencies we monitor for purposes of this report, and put in the third-worst performance amongst the EM currencies, ahead only of the THB and HUF. The rand traded between a low of USDZAR12.9887 and a high of USDZAR13.1890.
Commodity prices were mixed on Thursday. Copper and platinum were up on Thursday, by 4.2% and 1.8% respectively, while gold was down marginally on the day. Brent closed the day 10.3% higher, at $47.56/bbl. The developed world MSCI and the MSCI EM were up by 2.1% and 3.3% respectively on Thursday. The ALSI was up by 1.6%. Non-residents were net sellers (ZAR717 million) of equities on the day. The EMBI spread narrowed on Thursday, by 23 bps, and SA’s 5yr CDS narrowed by 10 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 13.9%.
Latest SA publications
SA FIC Trade Idea: SAGBs long-end looks like value by Walter de Wet (26 August 2015)
SA Macroeconomics: Mining grows 4.0% in June: Q2:15 contracts 2.0% q/q by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (25 August 2015)
SA Macroeconomics: SA GDP disappoints, -1.3% q/q: Broad based weakness, agric & trade far worse than expected by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (25 August 2015)
SA FIC Weekly: Yields – when the rand blows, and the SARB is forced to hike by Walter de Wet, Shireen Darmalingam and Penny Driver (24 August 2015)
SA Credit & Securitisation Flash Note: Robust ACSA FY:15 results — but regulatory concerns linger by Steffen Kriel (20 August 2015)
SA Macroeconomics: Eskom Holdings SOC Ltd: Fragile liquidity position by Steffen Kriel and Kim Silberman (18 August 2015)
SA Credit & Securitisation Flash Note: Eskom Holdings SOC Ltd by Steffen Kriel and Kim Silberman (18 August 2015)
SA Macroeconomics: SA's terms of trade under increasing pressure in 2H2015 : We consider SA's TOT under 3 commodity price scenarios by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 August 2015)
SA FIC Weekly: When China devalues by Walter de Wet, Shireen Darmalingam and Penny Driver (17 August 2015)
SA Macroeconomics: We revise our commodity price and currency outlook: Risks to commodity prices lie to the downside & we adjust our ZAR forecast weaker by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (13 August 2015)
SA FX Weekly: Rand weaker as cyclical drivers and EM support wane by Walter de Wet, Shireen Darmalingam and Penny Driver (12 August 2015)
SA Macroeconomics: June manufacturing -0.4% y/y: Q2 contracts -4.9% q/q saar, sending the sector into recession by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (11 August 2015)
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