Rand is trading well below 12.00 again. This psychological support level was overcome just before the US trading started yesterday.
The gains made by the rand were largely due to dollar weakness rather than rand strength.
EM currencies in general strengthened, with the BRL and TRY also gaining ground. The euro too is stronger against the dollar.
Risk appetite has improved substantially since Friday; the VIX index is now close to the lows seen this year and equities in general have been performing well the past few days.
We await the MPC meeting which starts tomorrow and ends on Thursday.
We expect the SARB to provide a hawkish statement but keep the repo rate unchanged. All else being equal, this should be rand-positive from an interest rate differential perspective.
As pointed out in our FX Weekly last week, we are reluctant to chase the spot rate in the short term. Since Friday, we have seen how fast the currency can turn around.
On the international front, the main data release would be US CPI for February. January already saw deflation in the US, with January coming in at -0.1% y/y. Bloomberg consensus is for -0.1% y/y in February.
An inflation print below expectations may add further rand strength.
Support for the USDZAR should come in at 11.87, 11.7500 and 11.6700. Resistance is at 11.9600 and then 12.150.
International developments
On the international data front, it’s a day for CPI releases, with numbers from the UK and US. In the UK, the m/m rise of 0.3% would leave the y/y rate at just 0.1%, according to the median forecast. That’s below the 0.3% annual rate last time but the Bank of England has acknowledged that inflation is likely to turn negative at some point. We think that the data might be a bit firmer than the consensus. Such an outcome could support the pound although he suspects there might be a bit more reaction to a downside shock given that MPC member Haldane’s mention of a possible rate cut last week is fresh in the markets memory (and one reason for sterling’s recent slide).
If it’s a race to negative CPI inflation, the US has already won, as annual inflation stood at -0.1% last time and, for today’s data for February, the market sees a repeat, based on a m/m rise of 0.2%. The core rate, excluding food and energy, is seen rising a more modest 0.1%. The consensus for a 0.1% core rise is quite strong – as it usually is. Some 81% of the 84 surveyed in the Bloomberg poll anticipate a 0.1% rise and it would be a shock if it were anything else.
Before the CPI data-fest, we will see the Eurozone PMI flash estimates for March. The manufacturing survey is seen up to 51.5 from 51. The survey has improved recently, although was unchanged in February. If it fails to rise again the market (and the euro) could feel a bit let down but Steve’s view is that the data is most likely to be a bit above the consensus.
Local developments
On the local front, it is a quiet week apart from the MPC meeting which concludes on Thursday. As mentioned before, we expect the SARB to provide a hawkish statement. All else equal, this should be rand-positive from an interest rate differential perspective.
Stats SA releases the Quarterly Employment Statistics for Q4:14 today at 11:30. While there are no consensus forecasts available, it is likely that the q/q non-farm payrolls will rebound in the final quarter after contracting by 1.5% q/q in Q3:14. Surveying the past 10 years, the Q4 q/q number has improved in the final quarter in 7 of the past 10 years.
Markets
The rand strengthened further on Monday, with the local currency closing at 11.90, compared to Friday’s close of 12.02. The rand’s appreciation against the greenback occurred in line with dollar weakness against some of the major currencies; the dollar posted the largest loss against the euro (1.2%), and the yen (-0.3%), but strengthened marginally against the pound. The rand gained ground most of the major crosses; the yen (0.7%) and the pound (-1.0%), but traded weaker against the euro (0.3%). The rand put in the second-worst performance amongst the commodity currencies we monitor for purposes of this report, only ahead of the CAD and put in a mixed performance amongst EM currencies. The rand traded between a low of USDZAR11.8860 and a high of USDZAR12.1359 intraday.
Today’s auction will see NT offer R900m of R213, R750m of R2037 and 700m of R2048. Over the past five days, offshore investors have bought +R511m of R213, +R274m of R2037 and +R292m of R2048. We think R213s will be the pick of the auction.
Turnover yesterday was just R16.6bn of nominal SAGBs, R735m of ILBs. 48% of turnover was in the R186, with 29% of turnover in front-end stock and 23% in back-end bonds. Offshore investors were net sellers of a very marginal -R193m. Selling was in the R207 (-R413m), R158 (-R250m) and R2023 (-R121m). This was offset with buying in the R203 (+R438m), R186 (+R162m) andR2032 (+R117m).
Commodity prices were up on Monday. Copper was up by 1.2% while platinum and gold were up by 0.9% and 0.6% respectively. The price of Brent increased on Monday, by 1.1%, to close higher at $55.92/bbl. Both the developed world MSCI and the MSCI EM were up on Monday, by 0.2% and 0.6% respectively. The ALSI was up by 0.1% on the day. Non-residents were net buyers of equities (ZAR2 741 million) on the day. The EMBI spread narrowed by 5 bps and SA’s 5yr CDS narrowed by 7 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, increased by 3.0%.
Latest SA publications
SA Macroeconomics: Economics Note: The SARB to remain on hold: Manufacturing & mining contract in January; the Fed is no longer “patient”; and S&P downgrades Eskom to speculative grade by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)
Credit & Securitisation Weekly: S&P downgrades Eskom by Steffen Kriel and Varushka Singh (20 March 2015)
SA FI Weekly: Little local driver to bonds by Asher Lipson (20 March 2015)
SA Macroeconomics: Economics Note: Jan retail sales slowed to 1.7% y/y from 2.0% y/y in December: General dealers -2.5% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)
SA Macroeconomics: Economics Note: CPI falls to 3.9% y/y: Services and food remain sticky by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)
SA Macroeconomics: Economics Note: CAD narrows to 5.1% of GDP: Trade data a positive surprise by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)
SA FX Weekly: Catching a falling knife by Marc Ground and Shireen Darmalingam (16 March 2015)
Credit & Securitisation Weekly: Eskom by Steffen Kriel and Varushka Singh (13 March 2015)
Credit & Securitisation Monthly: Update on Eskom by Steffen Kriel and Varushka Singh (6 March 2015)
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