Standard Bank Research Team
Standard Bank
Asian markets are having another good day following Wall Street’s longest winning streak this year. The S&P closed in the black for the fifth day running yesterday, making gains of 1.8% — its longest run since December last year.
The Reserve Bank of Australia yesterday kept the interest rate unchanged at 2%. The Bank last cut rates in May, and before that in February. There was little change in language, indicating that they’re not likely to cut rates again anytime soon.
US international trade data for August is due out later today. Reuters consensus pencils in a widening of the trade deficit to -USD47.4bn in August from -USD41.9bn in July.
The Fed will release the minutes of the 16-17 September FOMC meeting this week. Recall, the Fed kept interest rates unchanged at the September, with the statement not deviating much from the previous meeting.
Last week’s job’s data disappointed and adds to uncertainty around when “lift-off” will begin. While Fed members are still talking about a rate hike this year, markets are signalling that a move is only likely in 2016.
The Standard Bank South Africa PMI was released yesterday. The September PMI was expected to have remained unchanged at 49.3 pts, according to Bloomberg consensus expectations. In the event, the index fell to 47.9 pts in September. The Standard Bank PMI has been below the 50-benchmark line for four consecutive months.
International developments
Asian markets are having another good day following Wall Street’s longest winning streak this year. The S&P closed in the green for the fifth day running yesterday, making gains of 1.8%, which is its longest run since December last year. The Dow Jones also made gains yesterday, up 1.9%.
Chinese markets are still closed for the holidays, and at the time of writing the Japanese Nikkei was up 1.2%, while the Hong Kong Hang Seng was up 0.1%.
The Reserve Bank of Australia kept rates unchanged yesterday, keeping the interest rate at 2%. They last cut rates in May, and before that in February. There was little change in their language, indicating they’re not likely to cut rates again anytime soon. Rate cuts have had little impact on stimulating industries other than real-estate. The Governor noted that there had been “some further softening in conditions in China and East Asia of late” and the “Australian dollar is adjusting to the significant declines in key commodity prices”. The AUD has fallen by 12.9% against the dollar in the year to date.
While the ZAR has fallen by as much as 14.7% to the dollar since the start of the year, with the 14.00 level remaining the key resistance for the USDZAR, the rand has found some strength over the past two days. It traded in a range of 13.50 -14.00 and is currently steady at around 13.56.
US international trade data for August comes out later today. Reuters consensus is for a widening of the trade deficit to -USD47.4bn in August from -USD41.9bn in July.
The Fed will release the minutes of the 16-17 September FOMC meeting this week. Recall, the Fed kept interest rates unchanged at the September, with the statement not deviating much from the previous meeting. However, they indicated that concerns over the global economy and volatility in the markets may restrain economic activity. Noteworthy is that 13 of the 17 Fed policymakers still foresee a rate hike sometime this year, three think that “lift-off” will only occur next year, and one predicts no move before 2017.
Last week’s job’s data disappointed and adds to uncertainty around when “lift-off” will begin. Friday saw a sharp decline in the 10-year Treasury yield, but has since retraced some of that decline. While Fed members are still talking about a rate hike this year, markets are signalling that a move is only likely in 2016. Interest rate futures are pointing to a rate rise in March next year. Our base case is for a rate hike in December this year.
Local developments
The Standard Bank South Africa PMI was released yesterday. The September PMI was expected to have remained unchanged at 49.3 pts, according to Bloomberg consensus expectations. In the event, the index fell to 47.9 pts in September. The Standard Bank PMI has been below the 50-benchmark line for four consecutive months. Notable declines were registered in both the demand and business activity indices. Significantly, employment fell below 50 for the first time since May 2015 and was the second-largest contributor after economic activity, to the decline in September’s PMI. Our economics team expects employment in the manufacturing, mining and construction sectors, to be particularly impacted by lower commodity prices and slower domestic and global economic growth.
Looking ahead, signals from the PMI’s leading indicator continue to suggest ongoing deterioration, with the ratio of new orders to inventory falling further in September and remaining below 1 for a fourth consecutive month.
Markets
The rand strengthened further on Monday, closing at 13.62, compared to Friday’s close of 13.73. The rand’s appreciation against the greenback occurred despite dollar strength against all of the major currencies; the dollar posted gains against the yen (0.5%), the pound (-0.3%) and the euro (-0.2%). The rand strengthened against all of the major crosses; the rand gained ground against the yen (1.3%), the euro (-1.2%) and the pound (-1.1%). The rand put in the best performance amongst the commodity currencies we monitor, and put in the third-best performance amongst EM currencies, only behind the RUB and IDR. The rand traded between a low of USDZAR13.5253 and a high of USDZAR13.7812.
Commodity prices were mixed on Monday. Copper and platinum were up by 1.5% and 0.4% respectively, while gold was down by 0.3% on the day. Brent closed the day 2.3% higher, at $49.25/bbl. Both the developed world MSCI and the MSCI EM were up on the day, by 1.9% and 2.1% respectively. The ALSI was up by 2.4% on the day. Non-residents were net buyers (ZAR2.059 billion) of equities on the day. The EMBI spread narrowed on Monday by 18 bps, and SA’s 5yr CDS narrowed by 19 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 6.7%.
Latest SA publications
SA Macroeconomics: USD40Bn of EM outflows in Q3: We update our ZAR & repo rate forecasts & expect SA manufacturing to slow in Aug by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (6 October 2015)
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)
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