SA Q3:15 GDP disappoints; ZAR steady

The ongoing geopolitical tension in Syria made markets nervous yesterday. However, Wall Street closed in the black; the S&P and the Dow Jones both gained 0.1%. The rand is steady around 14.00.
US GDP data for Q3:15 has been revised higher to 2.1% q/q in the second estimate which came out yesterday. This is up from 1.5% for Q3 growth given last month. This will bolster the view that the US economy is healthy and ready for the Fed to begin lift-off.
In a surprise move, the Nigerian central bank cut rates by 200 bps yesterday. Expectations were for the bank to hold rates at 13% as the country is battling high inflation. This is the first rate cut in six years.
Stats SA released GDP data for Q3:15 yesterday. GDP came in lower-than-expected at 0.7% q/q (saar). On a y/y basis, Q3:15 GDP moderated to 1.0% from a revised 1.3% in Q2:15 (previously 1.2%).
The mining sector posted weak growth in Q3:15, contracting by 9.8% q/q (saar) from a contraction of 6.4% q/q (saar) in Q2:15, subtracting 0.8 pps from GDP growth. The agricultural sector has been plagued by the drought, and subtracted 0.3 pps. Inclement weather conditions will likely keep the agricultural sector’s growth under pressure in the coming quarters.
Encouragingly, the manufacturing sector expanded by 6.2 % q/q (saar) in Q3:15 from a contraction of 6.3% q/q (saar) in Q2:15.
The BER will release the Business Confidence Index for Q4:15 today at 12h00. The index is expected to have picked up to 42 pts in Q4:15 from 38 pts in Q3:15.

International developments

Syria made markets nervous yesterday. However, Wall Street closed up, with both the S&P and the Dow Jones making gains of 0.1%. The rand is steady around 14.00.

Asian markets are mixed this morning. At the time of writing, the Shanghai Composite was up 0.3%, the Shenzhen Composite was up 1.2%, the Japanese Nikkei was down 0.3%, and the Hong Kong Hang Seng was down 0.4%.

US GDP data for Q3:15 have been revised higher to 2.1% q/q in the second estimate which came out yesterday. This is up from the 1.5% q/q print for quarter three growth given last month. This will bolster the view that the US economy is healthy and ready for the Fed to begin lift-off. Core PCE prices for Q3:15 printed in line with expectations at 1.3% q/q, while PCE prices printed above expectations of 1.2% q/q to come in at 1.3% q/q. PCE prices are the Fed’s preferred measure of inflation. Consumer confidence for November surprised on the downside, coming in at 90.4, well below expectations of 99.5. They revised the October figure up from 97.6 to 99.1. The usual drivers for consumer confidence, namely gas prices, employment and the stock market, are all moving in the right direction, which makes this data print even more surprising.

In a surprise move, the Nigerian central bank cut rates by 200 bps yesterday. Expectations were for the bank to hold rates at 13% as the country is battling high inflation. This is the first rate cut in six years.

In the US, core PCE prices for October are out today which are expected to come in at 0.1% m/m. We also see data from the University of Michigan on consumer sentiment and their inflation expectations for November.

Local developments

Stats SA released the GDP data for Q3:15 yesterday. Bloomberg consensus pencilled in an increase in the Q3:15 print to 1.0% q/q (saar) from -1.3% q/q (saar) in Q2:15. Our economics team expected GDP growth to have increased to 0.5% q/q (saar) in Q3:15 on the back of domestic weather conditions, low commodity prices and China’s weak demand (see report Q3 GDP 0.5% q/q, and we update our repo rate view). In the event, GDP came in lower-than-expected at 0.7% q/q (saar). On a y/y basis, Q3:15 GDP moderated to 1.0% from a revised 1.3% in Q2:15 (previously 1.2%).

The mining sector posted weak growth in Q3:15, contracting by 9.8% q/q (saar) from a contraction of 6.4% q/q (saar) in Q2:15 and subtracted 0.8 pps from GDP growth. The agricultural sector has been plagued by the continuing drought and subtracted 0.3 pps. Inclement weather conditions could keep the agricultural sector’s growth pressured in the coming quarters.

Furthermore, The Department of Agriculture, Forestry and Fisheries reported to the agricultural committee yesterday that they have had requests totalling approximately R4.25bn from five provinces for aid to buy cattle feed and water due to the severe drought conditions. Unfortunately, the department could not complete their meeting as striking Nehawu members brought proceedings at parliament to a halt.

The construction sector has been constrained too as indicated by the declines in new building plans passed.

Encouragingly, the manufacturing expanded by 6.2 % q/q (saar) in Q3:15 from a contraction of 6.3% q/q (saar) in Q2:15. This positive growth added 0.8 pps to overall growth in the quarter. Improved growth in the quarter came on the back of higher production in petroleum, chemical products, rubber and plastic products, wood and wood products, paper, publishing and printing. The finance, real-estate and business services sector also expanded in Q3:15 by 2.8% q/q (saar) from 2.6% q/q (saar) in Q2:15 and contributed 0.6 pps to growth. The wholesale, retail and motor trade, catering and accommodation industry also contributed positively to growth in Q3:15.

Our economics team expects GDP growth of 1.4% in 2015, down from 1.5% in 2014.

The BER will release the Business Confidence Index for Q4:15 today at 12h00. While the index is expected to remain below the 50-benchmark line, Bloomberg consensus estimates are pencilling in a pick-up in business confidence in the final quarter. The index is expected to have picked up to 42 pts in Q4:15 from 38 pts in Q3:15.

Markets

The rand strengthened on Tuesday, closing at 14.03, compared to Monday’s close of 14.09. The rand’s appreciation against the greenback occurred in line with dollar weakness against some of the major currencies; the dollar posted losses against the yen (-0.3%) and the euro (0.1%), but gained against the pound (-0.3%). The rand’s performance was stronger against all of the major crosses; the rand gained ground against the pound (-0.6%), the euro (-0.3%) and the yen (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 third-best performance amongst EM currencies, only behind the BRL and RUB. The rand traded between a low of USDZAR13.9601 and a high of USDZAR14.1695.

Metal prices were mixed on Tuesday. Copper and gold were down on Tuesday, by 2.6% and 0.6% respectively, while platinum was down by 0.5% on the day. Brent closed 0.9% higher, at $46.12/bbl. Both the developed world MSCI and the MSCI EM were down on Tuesday, by 0.1% and 0.2% respectively. The ALSI was down by 0.7% on Tuesday. The EMBI spread widened by 3 bps on Tuesday and SA’s 5yr CDS widened by 2 bps on the day. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, increased by 2.0%.

Latest SA publications

SA Macroeconomics: Q3 GDP grows 0.7% q/q escaping a technical recession: Y/Y GDP growth slows 1.0% by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 November 2015)

SA Macroeconomics: Q3 GDP 0.5% q/q, and we update our repo rate view: SA's leading indicator, Q3 GDP, Business Confidence and PPI by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 November 2015)

SA FIC market themes: Reading the ratings by Walter de Wet, Shireen Darmalingam and Penny Driver (23 November 2015)

SA Credit & Securitisation Flash Note: Eskom quarterly update by Robyn MacLennan, Steffen Kriel and Varushka Singh (20 November 2015)

SA Macroeconomics: MPC raises by 25bps despite lowering GDP & CPI forecasts: USDZAR loves pre-emptive hike, but stays above 14.00 by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (20 November 2015)

SA FIC Flash Note: On the other hand by Walter de Wet, Shireen Darmalingam and Penny Driver (19 November 2015)

SA Macroeconomics: Sept retail sales slow to 2.7% from 4.0% y/y, Q3 3.9% q/q: Cyclical consumption contracts by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 November 2015)

SA Macroeconomics: CPI up 1ppt to 4.7% y/y: Core fell to 5.2% y/y, while food has begun to rise, to 4.9% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 November 2015)

SA Credit & Securitisation Flash Note: Barloworld Ltd by Robyn MacLennan (18 November 2015)

SA Macroeconomics: Draft credit life insurance caps: Further tightening of financial conditions by Kim Silberman and Steffen Kriel (18 November 2015)

SA Credit Special Report: Draft credit life insurance caps released by Steffen Kriel and Kim Silberman (18 November 2015)

SA Macroeconomics: Standard Bank Financial Conditions Index: SA financial conditions tightened in Sept by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (17 November 2015)

SA Macroeconomics: EM portfolio flows: SA debt flows & returns underperform: Net outflows continue on deteriorating global risk sentiment by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (17 November 2015)

SA Macroeconomics: Oct CPI flat & the repo on hold: SA bonds underperform EM MTD by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (16 November 2015)

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