ZAR breaks through 14.00 for the second time in two weeks

The rand remained on the back foot yesterday, breaking through the key resistance level of 14.00 for the second time in just two weeks. The initial blow-out was on Monday 24 August when it crashed from 13.00 to 14.00 to the dollar in no time.
Key resistance levels for the rand are at 14.000, 14.2500 and 14.5000, while support levels are at 13.8800, 13.7500, 13.6500 and 13.4500/5000.
Chinese trade data was released this morning; the numbers were not encouraging. August imports fell -13.8% y/y down from -8.1% y/y in July, while exports decreased by -5.5% y/y in August against a -8.3% y/y drop in July. The trade surplus expanded to USD60.236 billion, nearly 40% up from July.
Some good news out of Asia this morning came in the form of revised Japanese GDP numbers. The numbers show that the Japanese economy contracted by 0.3% rather than the originally published 0.4%, and undershooting expectations.
Asian markets have reacted to the Chinese data print, as expected. The Shanghai Composite is down 1.7%, the Shenzhen Composite is down 1.4%, the Japanese Nikkei is down 2.4%, and the Hong Kong Hang Seng is up 0.3%.
The BER business confidence index for Q3:15 is due for release at noon. The index is expected to have slipped, albeit marginally, remaining below the 50-benchmark line. Bloomberg consensus pencils in a slippage to 42 pts in Q3:15 from 43 pts in Q2:15.

International developments

The rand remained on the back foot yesterday, breaking through the key resistance level of 14.00 for the second time in just two weeks. The initial blow-out was on Monday 24 August when it crashed from 13.00 to 14.00 to the dollar in no time. Once again, South Africa was not alone, with most EM currencies falling against the dollar yesterday. The MYR, COP, RUB and KWR fell the most against the dollar. The rand is currently just below 13.95.

Key resistance levels for the rand are at 14.000, 14.2500 and 14.5000, while support levels are at 13.8800, 13.7500, 13.6500 and 13.4500/5000.

Chinese trade data was released this morning; the numbers were not encouraging. August imports fell -13.8% y/y, down from -8.1% y/y in July, while exports decreased by -5.5% y/y against a -8.3% y/y drop in July. The trade surplus expanded to USD60.236 billion, nearly 40% up from July. Additionally, the data showed that Chinese demand for key commodities (crude oil and iron ore) continued falling in August, while demand for copper, a leading indicator of economic activity, was flat during the month. This data indicates that the Chinese economy has fared worse than expected in August. The worse-than-expected trade data will exacerbate market nerves today as the data highlights that the world economy continues to slow.

Some good news out of Asia this morning came in the form of revised Japanese GDP numbers. The revised numbers show that the Japanese economy contracted by 0.3% rather than the originally published 0.4%, and undershooting expectations. Nonetheless, the slightly better-than-expected growth data, on the back of a build-up in inventories, fails to alter the overall picture of a subdued economy. Instead, the data suggests that the Japanese economy is likely to exhibit an unsteady recovery in the coming quarters.

Asian markets have reacted to the Chinese data print as expected. The Shanghai Composite is down 1.7%, the Shenzhen Composite is down 1.4%, the Japanese Nikkei is down 2.4%, and the Hong Kong Hang Seng is up 0.3%.

US equity futures are up this morning after the bank holiday yesterday, indicating a positive start for the trading week.

It’s a light data release day today, with US consumer credit for July due out later this afternoon. The preliminary Q2:15 GDP data out of the Eurozone is also due for release today; GDP is expected to come in at 0.3% q/q (sa) in Q2:15, from 0.4% q/q (sa) in Q1:15.

Local developments

The BER business confidence index for Q3:15 is due for release today at noon. The index is expected to have slipped, albeit marginally, remaining below the 50-benchmark line. Bloomberg consensus pencils in a slippage to 42 pts in Q3:15 from 43 pts in Q2:15. Recall, in Q2:15 the index fell more than anticipated, from 49 pts. The main driver of the decline in sentiment was a fall in confidence amongst new vehicle dealers, which plummeted from 44 pts in Q1:15 to 23 pts in Q2:15, while confidence amongst retailers fell from 60 pts in Q1:15 to 52 pts in Q2:15. The majority of correspondents to the BER’s business confidence survey clearly rating current conditions as unsatisfactory, which, coupled with increasing concerns about power supply, does not bode well for sentiment in H2:15.

Markets

The rand weakened further on Monday, breaking through 14.00 for the second time in just two weeks, closing at 13.97, compared to Friday’s close of 13.85. The rand’s depreciation against the greenback occurred in line with dollar strength against some of the major currencies; the dollar posted gains against the pound (0.7%), the euro (0.3%), but weakened against the yen (0.2%). The rand weakened against all of the major crosses; the rand lost ground against the pound (1.4%), the euro (1.0%) and the yen (-0.6%). The rand put in the worst performance amongst the commodity currencies we monitor for purposes of this report, and put in the second-worst performance amongst the EM currencies, ahead only of the RUB. The rand traded between a low of USDZAR13.8364 and a high of USDZAR14.0147.

Commodity prices were mixed on Monday. Gold and platinum were down on Monday, by 0.4% and 0.3%, while copper was up by 0.6% on the day. Brent closed the day 4.0% lower, at $47.63/bbl. The developed world MSCI was up by 0.2% on Monday, while the MSCI EM was down by 1.3% on the day. The ALSI was down by 0.2% on the day. The EMBI spread widened on Monday by 4 bps, and SA’s 5yr CDS widened by 4 bps.

Latest SA publications

SA Macroeconomics: SA manufacturing & mining to show positive growth in July: Despite risk aversion; SA received net portfolio inflows last week by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (7 September 2015)

SA Credit & Securitisation Special Report: Fitch withdraws from SA by Steffen Kriel (7 September 2015)

SA FIC Weekly: The rand is weak, but it has company by Walter de Wet, Shireen Darmalingam and Penny Driver (7 September 2015)

SA Credit & Securitisation Monthly: Focus on: Eqstra Holdings Ltd by Steffen Kriel (4 September 2015)

SA Macroeconomics: Aug vehicle sales -8.2% y/y: Passenger vehicle sales -8.3% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (2 September 2015)

SA Macroeconomics: August PMI retreats to 48.9: China's growth slowdown dampens manufacturing confidence by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (1 September 2015)

SA Macroeconomics: Jul records R0.4Bn trade deficit, YTD deficit shrinks to R25Bn: Base metal exports outperform, non-mineral import volumes contract by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (1 September 2015)

SA Macroeconomics: Bracing for China’s hard landing SA’s trade balance records a marginal deficit of R0.4Bn by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (31 August 2015)

SA FIC Weekly: Stagflation squeeze to tighten by Walter de Wet, Shireen Darmalingam and Penny Driver (31 August 2015)

SA Credit & Securitisation Weekly: Eskom’s coal contract in dispute by Steffen Kriel (28 August 2015)

SA FIC Trade Idea: SAGBs long-end looks like value by Walter de Wet (26 August 2015)

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