Standard Bank Research Team
Standard Bank
On Friday, the US released the monthly employment figures for September. The data disappointed on most fronts, with the headline change in non-farm payrolls printing 142k, well below the forecast for 201k. The number for August was also adjusted lower from an initial print of 173k to 136k.
In the past, we would have read a weak US employment print as dollar-negative (and as a result rand-positive). However, concerns over global growth, especially in China and EM, remain high and, should the US economy slow, it may well put further depreciating pressure on EM currencies.
US markets didn’t take the news too badly on Friday, with both the S&P and Dow Jones closing in the black. The S&P gained 1.4%, and the Dow Jones 1.2%.
Strikes in SA’s coal sector start today following the deadlock between unions and producers. The National Union of Mineworkers (NUM) has embarked on the strike after months of negotiations over wages.
Progress is being made in the gold sector. The Chamber of Mines has reached an agreement with NUM, Solidarity and UASA, with a three-year agreement in respect of wages and conditions of service for the period 1 July 2015 to 30 June 2018.
The Standard Bank South Africa PMI is scheduled for release this morning at 09h15. The September PMI is expected to have remained unchanged at 49.3 pts, in line with the Barclays Manufacturing PMI which came in at 49.0 pts in September.
This week also sees the release of Stats SA’s mining and manufacturing production data for August.
International developments
On Friday, the US released the monthly employment figures for September. The data disappointed on most fronts, with the headline change in non-farm payrolls printing at142K, well below the expected number of 201K. The number for August was also adjusted lower from the initial print of 173K to 136K. While the unemployment rate remained unchanged at 5.1%, there was another drop in the labour force participation rate which now stands at 62.4% in September — down from 62.6% in August.
In the past, we would have read a weak US employment print as dollar-negative (and as a result rand-positive). However, concerns over global growth, especially in China and EM remain high and, should the US economy slow, it may well add further depreciating pressure to EM currencies. As far as bonds are concerned, US bonds rallied on Friday with the 10-year yield now at 1.99%. Lower yields in the US are likely to benefit domestic yields, too. The benefit may be partly offset by the negative impact that weak growth may have on EM currencies.
US markets didn’t take the news too badly on Friday, with both the S&P and Dow Jones closing in the black. The S&P made gains of 1.4% and the Dow Jones closed 1.2% up. The Asian markets have followed these rather than the negative print and are having a good morning of trade. The Chinese markets are closed for holidays, but at the time of writing, both the Japanese Nikkei and the Hong Kong Hang Seng were up 1.8%.
This week sees the release of the US trade balance data for August. The Fed also releases the minutes of the 16-17 September FOMC meeting this week. The Bank of England meets this week to decide on monetary Policy. Expectations are for rates to remain unchanged at 0.5%.
Local developments
Strikes in SA’s coal sector start today as talks have deadlocked. The National Union of Mineworkers (NUM) has embarked on the strike following months of negotiations over workers’ wages. NUM was demanding a 15% increase in wages for its workers, while producers have increased their offer to 8.5%, up from 8.0%. Eskom has indicated that the strike was unlikely to impact power generation at this stage. However, should the strike last longer than a month, Eskom’s power generation might be adversely impacted.
Progress is being made in the gold sector. The Chamber of Mines has reached an agreement with NUM, Solidarity and UASA, with a three-year agreement in respect of wages and conditions of service for the period 1 July 2015 to 30 June 2018. In terms of a “peace clause”, workers may not embark on industrial action regarding the terms and conditions of employment during the existence of the agreement. A wage settlement of between 10% and 13% increase in basic wages for entry-level employees in each of the 3 years was agreed upon. AMCU has, however, rejected the offer and has been granted certificates of non-resolution by the CCMA.
The Standard Bank South Africa PMI is scheduled for release this morning at 09h15. The September PMI is expected to have remained unchanged at 49.3 pts, in line with the Barclays Manufacturing PMI which came in at 49.0 pts in September. The Standard Bank MPI has been below the 50-benchmark line for three consecutive months.
This week also sees the release of Stats SA’s mining and manufacturing production data for August. According to Bloomberg consensus expectations, mining production growth, due out on Thursday at 11h30, is expected to have increased to 6.3% y/y in August from 5.6% y/y in July. On a m/m basis, however, mining output growth is expected to have moderated to 0.8% from 1.1% in July. Growth in manufacturing production, also due on Thursday at 13h00, is expected to have moderated in August, to 1.3% y/y from 5.6% y/y in July.
Markets
The rand strengthened on Friday, closing at 13.73, compared to Thursday’s close of 13.92. The rand’s appreciation against the greenback occurred in line with dollar weakness against all of the major currencies; the dollar posted losses against the pound (0.4%), the euro (0.2%) and the marginally against the yen. The rand strengthened against all of the major crosses; the rand gained ground against the yen (1.3%), the euro (-1.1%) and the pound (-1.1%). The rand put in the best performance amongst the commodity currencies we monitor, and put in the second-best performance amongst EM currencies, only behind the BRL. The rand traded between a low of USDZAR13.7271 and a high of USDZAR14.0204.
Commodity prices were up on Friday. Gold and platinum were up by 2.3% and 0.6% respectively, while copper was up by 0.1% on the day. Brent closed the day 0.9% higher, at $48.13/bbl. Both the developed world MSCI and the MSCI EM were up on the day, by 1.2% and 0.8% respectively. The ALSI was up by 0.9% on the day. Non-residents were net sellers (-ZAR598 million) of equities on the day. The EMBI spread narrowed on Friday by 2 bps, and SA’s 5yr CDS narrowed by 2 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 7.1%.
Latest SA publications
SA FIC Weekly: Weaker rand, but rates view stands by Walter de Wet, Shireen Darmalingam and Penny Driver (5 October 2015)
SA Credit & Securitisation Monthly: Quarterly update – Q3 2015 by Robyn MacLennan, Steffen Kriel and Varushka Singh (2 October 2015)
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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