• The rand managed to pull back below the psychological 14.00 level yesterday amid the S&P Index in the US ending marginally higher – the first time in five trading sessions of ending in positive territory.

  • Although the correlation between the rand (and other EM currencies) and equity markets remains high, there is still much uncertainty over EM economies. This is evident from country 5-year USD CDS which continue to move higher – a clear indication that markets remain concerned over the EM outlook.

  • Tomorrow sees the release of China manufacturing PMI for September – a number the market will watch closely. Seasonally, China’s PMI has always come out higher m/m in September.

  • Although the Asian markets have made some gains this morning, they are still on course to see their worst quarter in years. They’re not alone. Markets across the globe are expected to report some of their worst performances in years.

  • The SARS trade balance data for August is due for release today at 14h00. Bloomberg consensus pencils in a widening of the deficit to -ZAR3.4bn in August from -ZAR0.4bn in July. Our economics team’s forecast is in line with consensus at -ZAR3.4 billion. The rand is likely to remain under pressure ahead of the data release.

  • Stats SA’s release of employment statistics for Q2:15 saw non-farm payrolls fall by -1.8% y/y in Q2:15 from a revised -0.4% y/y in Q1:15. Employment declined by 161,000 to 8.944 million employed in the formal non-agricultural industries from 9.105 million people employed in Q2:14.


International developments

The rand managed to pull back below the psychological level of 14.00 yesterday. This comes amid the S&P Index in the US ending marginally higher – the first time in five trading sessions that the index ends in positive territory. The rest of the week will be data-heavy, with the US non-farm payrolls on Friday and the China manufacturing PMI tomorrow. Global forces remain at play in the rand. That said, we will keep a close eye today on the SA trade balance data for August.

Although the correlation between the rand (and other EM currencies) and equity markets remains high, uncertainty over EM economies still lingers. This is evident from country 5-year USD CDS which continue to move higher – a clear indication that markets remain concerned over the outlook of EM economic health. South Africa’s CDS rose to 307bps points yesterday – up from 220bps at the start of July. While we believe a CDS at 300bps is too high, concerns over South Africa are overdone, country specifics (and the rand) remain hostage to global forces. The high (and overdone) CDS is one of the reasons why we believe that local bonds may rally should the rand manage to settle.

Tomorrow sees the release of China manufacturing PMI for September – a number the market will watch closely. Seasonally China’s PMI has always printed higher m/m in September. Bloomberg consensus expectations are for a print of 49.7 pts – unchanged from the October print – although history would suggest that bias lies to the upside for this print. As a result, if we come in unchanged m/m, we would read the print as quite bearish.

Asian markets are trading slightly up this morning after a positive close for the S&P and Dow Jones indices yesterday. The S&P closed 0.1% up and the Dow Jones made gains of 0.3% by the end of trade yesterday. At the time of writing, the Shanghai Composite was up 0.8%, the Shenzhen Composite was up 0.2%, the Japanese Nikkei was up 2.9%, and the Hong Kong Hang Seng was up 1.6%.

Although the Asian markets have made some gains this morning, they are still on course to see their worst quarter in years. They’re not alone. Markets across the globe are expected to report some of their worst performances in years. The S&P, for example, has lost 8.7% this quarter, its biggest decline in four years.


Local developments

The SARS trade balance data for August is due for release today at 14h00. Bloomberg consensus pencils in a widening of the deficit to -ZAR3.4bn in August from -ZAR0.4bn in July. Our economics team’s forecast is in line with consensus at -ZAR3.4 billion. The rand is likely to remain under pressure ahead of the data release.

Stats SA’s release of the quarterly employment statistics for Q2:15 saw non-farm payrolls fall by -1.8% y/y in Q2:15 from a revised -0.4% y/y in Q1:15. Employment declined by 161,000 to 8.944 million employed in the formal non-agricultural industries from 9.105 million people employed in Q2:14. On a quarterly basis, employment fell by 1,000 and was driven by losses in the following industries: manufacturing (-7,000), transport (-4,000), business services (-3,000) and construction (-2,000). Increases in employment were reported in the trade industry (8,000) and community services (7,000).


Markets

The rand strengthened on Tuesday, closing at 13.98, compared to Monday’s close of 14.06. The rand’s appreciation against the greenback occurred in line with dollar weakness against some of the major currencies; the dollar posted losses against the yen (-0.1%) and the euro, but gained against the pound (-0.1%). The rand strengthened against all of the major crosses; the rand gained ground against the pound (-0.7%), the euro (-0.5%) and the yen (0.5%). The rand put in the second-best performance amongst the commodity currencies we monitor, only behind the NOK, and put in a mixed performance amongst EM currencies. The rand traded between a low of USDZAR13.8839 and a high of USDZAR14.1588.

Commodity prices were mixed on Tuesday. Gold and platinum were down by 0.4% and 0.1% respectively, while copper was up by 0.1% on the day. Brent closed the day 1.9% lower, at $48.23/bbl. Both the developed world MSCI and the MSCI EM were down on the day, by 0.6% and 0.7% respectively. The ALSI was down by 0.2% on the day. Non-residents were net buyers of equities on the day. The EMBI spread widened on Tuesday by 5 bps, and SA’s 5yr CDS widened by 7 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 2.9%.


Latest SA publications

SA Macroeconomics: SARB keeps repo rate at 6.0%: Growth outlook deteriorates meaningfully, inflation largely unchanged by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 September 2015) SA FIC Flash Note: SARB - hawkish statement with lower growth by Walter de Wet (23 September 2015)

SA Macroeconomics: SA CPI slows to 4.6% y/y: Core inflation falls to 5.3% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (23 September 2015) SA FIC Weekly: SARB – a hawkish pause by Walter de Wet, Shireen Darmalingam and Penny Driver (21 September 2015)

SA Credit & Securitisation Weekly: Transnet’s acting CEO comments by Steffen Kriel (18 September 2015)

SA Macroeconomics: July retail sales grow 3.3% y/y, down from 3.8% y/y in June: General dealers and textiles together contribute 1.9 ppts by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (16 September 2015)

SA Macroeconomics: SA Q2 CAD narrows, retail sales slow in Jul & we await FOMC: PCE & Investment may disappoint by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (14 September 2015)

SA FIC Weekly: Key FOMC meetings matter by Walter de Wet, Shireen Darmalingam and Penny Driver (14 September 2015)

SA Macroeconomics: EMs see net outflows of USD4.6Bn in Aug; YTD flows are down 49%: SA equity inflows up 25.9% YTD; debt inflows down 27.3% YTD by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (11 September 2015)

SA Credit & Securitisation Weekly: Stangen offer price disclosed by Steffen Kriel (11 September 2015)

SA Macroeconomics: Manufacturing up 5.6% in July: Robust growth led by iron & steel and motor vehicles production by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (10 September 2015)

SA Macroeconomics: Mining grows 5.6% y/y in July: PGMs up 72% y/y on base effects from the H1:14 strike by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (10 September 2015) SA FIC Flash Note: ALBI reweighting: duration set for small increase in October by Walter de Wet and Penny Driver (9 September 2015)

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