• The Greeks voted “no” to the austerity measures suggested by Greece’s creditors in yesterday’s referendum. At 61.3%, the anti-austerity camp’s vote now raises concerns that Greece may fall deeper into turmoil while it tries to prevent a financial system collapse.

  • With the onus now on the Greek government to make the next move, the emergency summit of European leaders take place tomorrow. Focus will be on how the Greek government plans to stabilise the country. The Greek government has said all along that it wants to remain a member of EMU.

  • Prolonged bank closures and capital controls could push Greece quickly towards the point at which leaving EMU appears better than trying to stay inside.

  • The rand is likely to remain under pressure today; tactically we would continue to approach the currency from the short side against the dollar. Support for the USDZAR is at 12.3500, 12.2800/2500, 12.2100 and 12.1350; resistance is at 12.4050, 12.4800, 12.6500 and 12.800.

  • This week sees the release of the SARB’s gross gold and foreign exchange reserves for June tomorrow at 08h00. Bloomberg consensus expects an increase in gross reserves to $46.63 billion in June from $46.54 billion in May. Net reserves are also expected to have increased, to $41.65 billion in June from $41.52 billion in May.

  • Stats SA will also release both the mining and manufacturing production data on Thursday. The May mining production out at 11:30 is expected to print stronger at 8.6% y/y, according to Bloomberg consensus, from 7.7% y/y in April. Standard Bank expects milder growth of 8.1% y/y in May on the back of continued positive base effects from the industrial action in the PGM sector which persisted during H1:14.

  • The manufacturing production data is expected to have swung into positive territory in May. Bloomberg consensus expects manufacturing production to come in at 1.0% y/y in May from a contraction of 2.0% y/y in April. Standard Bank, however, expects manufacturing production to remain in contraction, at -3.1% y/y.


International developments

The Greeks voted ‘no’ to austerity measures by Greece’s creditors in yesterday’s referendum. With 61.3%, the anti-austerity camp’s vote now raises concerns that Greece can fall deeper into turmoil while it tries to prevent a financial system collapse. With the country fast running out of cash, Prime Minister Tsipras is now ready to resume talks with debt being the focus of the negotiations.

With the onus now on the Greek government to make the next move, the emergency summit of European leaders gathers tomorrow. Focus will now be on how the Greek government plans to stabilise the country. The Greek government has said all along that it wants to remain a member of EMU. Our G10 Strategist, Steve Barrow, notes that while the Greek economy might still seem best served by staying in EMU and avoiding the huge short-term shock of an exit, there will seemingly become a point where staying in EMU seems so costly that the economy might be best served by an exit, even if this causes significant short-term pain. Steve notes that prolonged bank closures and capital controls could push Greece quickly towards the point at which leaving EMU appears better than trying to stay inside.

USTs strengthened following the result of the referendum, with the 10-year yield falling from 2.38% to the current 2.27%. German bonds were also stronger, with the 10-year yield continuing to fall, from 0.84% on Thursday to 0.79% on Friday.

The local currency lost ground on Friday. It initially went up to 12.4002 against the dollar but managed to claw back some losses, and closed the day at around 12.32. The rand is likely to remain under pressure today; tactically we would continue to approach the currency from the short side against the dollar. Support for the USDZAR is at 12.3500, 12.2800/2500, 12.2100 and 12.1350; resistance is at 12.4050, 12.4800, 12.6500 and 12.800.


Local developments

This week sees the release of the SARB’s gross gold and foreign exchange reserves for June tomorrow at 08h00. Bloomberg consensus expectations is pencilling in an increase in gross reserves to $46.63 billion in June from $46.54 billion in May. Net reserves are also expected to have increased, to $41.65 billion in June from $41.52 billion in May.

Stats SA will also release both the mining and manufacturing production data on Thursday. The May mining production out at 11:30 is expected to print stronger at 8.6% y/y, according to Bloomberg consensus, from 7.7% y/y in April. Standard Bank expects milder growth of 8.1% y/y in May, on the back of continued positive base effects from the industrial action in the PGM sector which persisted during H1:14, which are likely to see the momentum of the previous three YoY mining prints kept up.

The manufacturing production data is expected to have swung into positive territory in May. Bloomberg consensus expects manufacturing production to come in at 1.0% y/y in May from a contraction of 2.0% y.y in April. Standard Bank, however, expects manufacturing production to remain in contraction, with a forecast of -3.1% y/y in May. May is a seasonally stronger month following a general slowdown in April due to the public holidays over Easter. Additionally, base effects are positive as production in May 2014 was slower versus the two preceding years due to the re-tooling in the Mercedes Benz plant which negatively impacted the May 2014 print. SBGS Economist further notes that signs from the PMI are also at first glance positive for May’s manufacturing print as it edged above the 50 points mark from an 11-month low of 45.4 in April. However, we think that the rise in new sales orders to 52.2 pts from 42.3 pts was due to an improvement in export performance which was aided by the weaker exchange rate, while the business activity index technically remained in contraction despite the sharp rise in the sub-index to 49.6 from 40.6.


Markets

The rand weakened on Friday, closing at 12.32, compared to Thursday’s close of 12.25. The rand’s depreciation against the greenback occurred despite dollar weakness against some of the major currencies; the dollar posted losses against the euro (0.3%) and the yen (-0.2%), but gained ground against the pound (-0.2%). The rand lost ground against all of the major crosses; the euro (0.8%), the yen (-0.8%) and the pound (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 AUD and put in the the third-worst performance amongst the EM currencies, only ahead of the RUB and BRL. The rand traded between a low of USDZAR12.1754 and a high of USDZAR12.4002.

Commodity prices were mixed on Friday. Gold was up by 0.2% on Friday, while copper and platinum were down by 0.6% and 0.1% respectively. Brent closed 2.8% lower, at $60.32/bbl. Both the developed world MSCI and the MSCI EM were down on Friday, by 0.2% and 0.7% respectively. The ALSI was down by 0.5%. Non-residents were net buyers of equities (ZAR437 million) on Friday. The EMBI spread narrowed by 1 bp on Friday, while SA’s 5yr CDS widened marginally.


Latest SA publications

Credit & Securitisation Weekly: Mixed fortunes for Eskom by Steffen Kriel and Varushka Singh (3 July 2015)

SA Macroeconomics: PMI rose from 50.8 to 51.4: Activity & employment improve but new orders decline by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (1 July 2015)

Credit & Securitisation Special Report: African Bank H1:15 results – more of the same by Steffen Kriel (1 July 2015)

SA Macroeconomics: May private credit 9.5% y/y: Corporate credit up 16.2% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (30 June 2015)

Credit & Securitisation Special Report: NERSA rejects selective reopener in favour of a full reopener & RCA claw-backs by Steffen Kriel and Kim Silberman (30 June 2015)

SA Macroeconomics: NERSA rejects Eskom's re-opener: Implications by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (30 June 2015)

SA Macroeconomics: Nersa decides on tariffs today: Greece to dominate EM assets by Kim Silberman and Steffen Kriel (29 June 2015)

SA FIC Weekly: Eskom, Greece in focus; revised wage deal has important policy implications by Walter de Wet and Shireen Darmalingam (29 June 2015)

Credit & Securitisation Weekly: Crunch time by Steffen Kriel and Varushka Singh (26 June 2015)

Credit & Securitisation: Eskom's selective reopener by Steffen Kriel and Kim Silberman (26 June 2015)

SA Macroeconomics: The timing of Eskom's tariff increase will significantly impact CPI and the MPC's decision: We await NERSA's decision on Monday June 29th by Kim Silberman and Steffen Kriel (26 June 2015)

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