• The rand is a little firmer against the dollar as we await the FOMC statement later today. We also await local trade data on Friday.

  • As far as the FOMC statement is concerned, there will be the usual side-by-side comparison of today’s statement relative to the previous statement, with a focus on the language around labour markets and wage growth.

  • With the rand trading at 12.55 against the dollar, support for the USDZAR comes in at 12.5075, and 12.4460. Resistance is at 12.6400 and 12.7200.

  • US consumer confidence fell sharply in July. Although this may call into question the sustainability of the recovery of the US consumer, it is worth noting that confidence has been running at levels last seen in 2007 before the financial crises.

  • The decline in US consumer confidence is likely to put next week’s US non-farm payrolls data in the spotlight (more so than usual) given that employment and consumer confidence (and the ongoing economic recovery) are closely linked.

  • After an extremely volatile start to the week, China’s Shanghai Composite Index has also steadied, trading only 0.48% down this morning.

  • Stats SA will release the unemployment data for Q2:15 at 13h00. The unemployment rate, which has oscillated around the 25% mark since 2010, increased to 26.4% in Q1:15.

  • The rand put in the second-worst performance amongst the commodity currencies we monitor for purposes of this report, ahead only of the NOK, and put in the best performance of the EM currencies.


International developments

The rand is marginally stronger against the dollar as we await the FOMC statement later today. We also await local trade data on Friday. Given the rand’s volatility in terms of the current account deficit, it is likely to be sensitive to trade data as well.

Precious metal prices remain steady (at low levels) after their recent slide, aiding sentiment towards the currency. With the rand trading at 12.55 against the dollar, support for the USDZAR comes in at 12.5075 and 12.4460. Resistance is at 12.6400 and 12.7200.

Yesterday saw the US Conference Board consumer confidence index for July come in below expectations. The Consumer Confidence Index fell to 90.9, which was well below consensus expectations for a print of 100 and lower than the June print of 99.8. There was a sharp decline in the expectations component of the index which tends to be sensitive to current economic developments such as the declining stock market. Although the drop was sharp and may call into question the sustainability of the recovery of the US consumer, it is worth noting that confidence has been running at levels last seen in 2007 before the financial crises. The decline is likely to put next week’s US non-farm payroll data in the spotlight (more than usual) given that employment and consumer confidence (and the ongoing economic recovery) are also closely linked.

That said, the US bond and equity markets shrugged off the weak consumer data, and rallied yesterday, with the S&P and Dow closing 1.24% and 1.09% higher. The 10-year UST bond yield rose marginally from 2.21% to the current 2.25%. Bloomberg consensus puts the 10-year bond yield at 2.44% at the end of Q3:15. Equity markets across Europe also closed higher.

After the extremely volatile start to the week, China’s Shanghai Composite Index has also steadied, with the index trading only 0.48% down this morning (at the time of writing). That said, there are still concerns over intervention by Chinese authorities in the equity market rout in China and whether the sell-off will continue once the intervention stops.

As far as the FOMC statement is concerned, there will be the usual side-by-side comparison of today’s statement relative to the previous statement. The focus will be on language around the labour market, wage growth and whether the Fed may act in a slow and very accommodative manner once they actually start their rate hiking cycle. We still see “lift-off” in September.


Local developments

Stats SA releases the unemployment data for Q2:15 today at 13h30. The unemployment rate, which has oscillated around the 25% mark since 2010, increased to 26.4% in Q1:15. Bloomberg consensus pencils in a further increase in the unemployment rate, to 26.5%. Labour relations remain strained as sustained low commodity prices and higher operating costs weigh on companies’ profitability. Job losses are being announced in the mining sector. Lonmin and Anglo American have stated their intentions to lower their respective employment bases, close shafts and reduce assets. This does not bode well for the labour market in H2:15.


Markets

The rand strengthened on Tuesday, closing at 12.57, compared to Monday’s close of 12.62. The rand’s appreciation against the greenback occurred despite dollar strength against some of the major currencies; the dollar posted gains against the euro (-0.3%) and the yen (0.3%), but weakened against the pound (0.4%). The rand gained ground against all of the major crosses; the yen (0.7%), the euro (-0.7%) and the pound (-0.1%). The rand put in the second-worst performance amongst the commodity currencies we monitor for purposes of this report, only ahead of the NOK and put in the best performance amongst the EM currencies. The rand traded between a low of USDZAR12.5326 and a high of USDZAR12.6518.

Metal prices were up on Tuesday. Copper and platinum were up on Tuesday, by 2.1% and 0.2% respectively. Gold was up 0.2% on the day. Brent closed the day 0.3% lower, at $53.30/bbl. The developed world MSCI was up by 0.8% on Tuesday while the MSCI EM was down further on the day, by 0.2%. The ALSI was down by 0.9% on the day. Non-residents were net sellers (-ZAR2.625 billion) of equities on Tuesday. The EMBI spread narrowed by 3 bps on Tuesday, and SA’s 5yr CDS narrowed by 4 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, increased by 13.9%.


Latest SA publications

SA Macroeconomics: EM portfolio flows: Portfolio flows in H1:15 are down 32% on H1:14 by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (28 July 2015)

SA Macroeconomics: SA trade surplus expected: $0.3Bn net outflows from EMs: SA saw net debt & equity inflows by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (27 July 2015)

SA FIC Weekly: Despite the oil price decline, the cyclical underpin for the rand is still far from reliable by Walter de Wet and Shireen Darmalingam (27 July 2015)

SA FIC: The SARB: still hawkish, but more dovish by Walter de Wet (23 July 2015)

SA Macroeconomics: SARB hikes repo 25bps to 6.0%: Statement supportive of our view for rates on hold until 2H:2016 by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (23 July 2015)

SA FIC Trade Idea: Time to revisit the receiver trade by Walter de Wet (23 July 2015)

SA Macroeconomics: May CPI rises to 4.7% y/y: Core falls to 5.5%, food to 4.3% by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (22 July 2015)

SA Macroeconomics: MPC to hike & CPI to rise: Net inflows to EMs over the past week: SA receives lion's share of equity inflows & debt outflows by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (20 July 2015)

SA FIC Weekly: A 25 bps hike and then a pause by Walter de Wet and Shireen Darmalingam (20 July 2015)

Credit & Securitisation Flash Note: Transnet SOC Ltd by Steffen Kriel (17 July 2015)

Credit & Securitisation Weekly: Another Transnet secondee to Eskom by Steffen Kriel and Varushka Singh (17 July 2015)

SA Macroeconomics: May retail sales growth 2.4% y/y down from 3.4% in Apr: General dealers slowed 2.3% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (15 July 2015)

SA Macroeconomics: Greece reaches a deal, China opens stronger, Oil falls to $56.5: SA consumption expected to slow by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (13 July 2015)

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