Standard Bank Research Team
Standard Bank
FX
A slew of data for China was released overnight, most notably Q3:14 GDP numbers. Although GDP growth slowed to a five-year low of 7.3% y/y from 7.5% y/y in Q2:14, this was slightly better than the Bloomberg consensus call for 7.2% y/y. In seasonally adjusted q/q terms, growth slowed from 2.0% in Q2:14 to 1.9% in Q3:14. The main drag on the headline figure appears to have come from the service sector, with growth here slipping to 7.8% y/y from 8.1% y/y in the preceding quarter. Capital Economics believes that much of this slowdown was likely concentrated in the real estate sector. For confirmation of this, look to tomorrow’s release of GDP figures broken down by industry. The real estate sector only grew 2.0% y/y in Q2:14. Growth in the secondary sector (industry and construction), was slightly lower at 7.4% y/y in Q3:14 compared with 7.5% y/y in Q2:14.
Other indicators released overnight were mixed. The September reading on industrial production came out stronger than anticipated at 8.0% y/y (Bloomberg consensus: 7.5%). This should ease concerns that August’s disappointing 6.9% y/y might have signaled the start of a sharp downturn in industrial activity. Retail sales data for September was slightly disappointing at 11.6% y/y. Analysts had expected a slowdown to 11.7% y/y from August’s 11.9% y/y. Once again highlighting the slowdown in the real estate sector, YTD growth of fixed asset investment fell to 16.1% in September from 16.5% in August, with the fall driven largely by decelerating property investment. It seems likely that Q4:14 will play out largely the same as Q3:14, with the property sector continuing to weigh on overall economic activity. Analysts expect Q4:14 growth to remain steady at 7.3% in y/y terms. This implies that 2014 growth, at around 7.4%, would fall slightly short of the authorities’ target of “about 7.5%”.
However, as Capital Economics points out, this target was always intended to be flexible and that a relatively small undershoot should not cause policymakers to panic, especially if the slowdown remains largely concentrated in a few oversupplied sectors. Given that today’s GDP figures were slightly better than anticipated, this could offer some support to commodities and commodity currencies today.
The rand strengthened further against the US dollar yesterday, closing at USDZAR11.02, compared with Friday’s close of USDZAR11.08. Rand strength against the greenback occurred into a mixed performance from the dollar against the major crosses, a mixed to stronger performance from the commodity we monitor for purposes of this report and a mixed performance from EM currencies. The dollar weakened against the euro and the pound, while strengthening against the yen. The rand strengthened against all of the major crosses, with the biggest move seen against the yen (0.6%). Three of five commodity currencies we cover – namely, the NZD, ZAR and AUD – appreciated on the day. The remaining two currencies – namely the CAD and the NOK – depreciated on the day. Five of the nine EM currencies we monitor for the purposes of this report – namely, the IDR, ZAR, THB , INR and TRY – appreciated on the day. The MXN, HUF, RUB and BRL depreciated. The rand was the second-best-performing currency in both categories. The rand traded between a low of USDZAR11.0128 and a high of USDZAR11.1029 intraday. Support from where the rand opened this morning sits at 11.0400, 10.9500, 10.9200 and 10.8000, 10.7500. Resistance levels sit at 11.1650, 11.2450, 11.3100, 11.3550 and 11.4000.
Commodity price moves were mixed. Gold and platinum rose by 0.7% and 0.4% respectively. Copper and Brent meanwhile fell by 1.2% and 0.9% respectively. The developed market MSCI rose by 0.8% and the EM MSCI by 0.5%. The ALSI meanwhile fell by 0.5%. The EMBI spread widened by 1 bp, while SA’s 5yr CDS spread was unchanged. The CBOE VIX index, a volatility based proxy for global risk appetite/aversion, fell by 15.6%.
Non-residents were marginal net sellers of local equities (-ZAR59 million) and were moderate net sellers of local bonds (-ZAR174 million) on the day. Selling of bonds was seen in the 1-3 (-ZAR76 million), 12+ (-ZAR61 million) and 3-7 (-ZAR36 million) year segments. Bond yields fell on the day in a parallel shift in the curve; the R203, R208, R186 and R214 all fell by 4 bps. The 3x6 and 12x15 FRAs both fell by 2 bps, and the 6x9 FRA fell by 3 bps.
FI
Apart from today’s auction (ZAR800m R2030, ZAR800m R2032, ZAR750m R2048), we do not expect much excitement today, after yesterday’s quietness. The market has seems to be waiting for CPI and the MTBPS tomorrow. However, if USDZAR continues trading below 11.00 going into the auction, it could cause some excitement amongst market participants. Markets are opening this morning over 5 bps lower; the R186 is opening at around 8.01%.
Following the decline in demand at last Tuesday’s weekly nominal government bond auction, which saw auction bids as well as investor participation wane, NT has further reduced the average tenor of the upcoming offering. Today’s auction has ZAR800m on offer in each of the R2030 and the R2032, and ZAR750m on offer in the longest-dated R2048. The average tenor of the bonds on offer is 22.05 years, one year shorter than last week’s auction, which had an average tenor of 23.05 years. On a weighted basis, the upcoming auction has an even shorter average maturity of 21.81 years, as both the R2030 and the R2032 have tenors of less than 20 years.
Turnover stats for yesterday back up how quiet it felt. The JSE recorded turnover of just ZAR7.9bn in nominal SAGBs. 43.5% of turnover was due to the R186, with an additional 18.3% coming from trade in the R213. The curve predominantly shifted lower in a parallel fashion by 3.5. The R159 moved 2.5 bps lower, while the R2030, R213 and R2032 moved 4.0 bps lower. FRAs followed the bonds and currency, moving 2 – 3 bps lower.
Non-residents were net sellers of nominal SAGBs yesterday for a third consecutive trading day. However, the amount sold yesterday was recorded at a marginal -ZAR174m compared with -ZAR2.10bn last Friday and -ZAR2.25bn last Thursday. Net selling yesterday was recorded across all segments of the curve, but no bucket was net sold for more than -ZAR100m. A few notable transactions were recorded in the 12+ year segment only. Notable net selling was recorded in the R2048 (-ZAR119m), R186 (-ZAR112m) and R2044 (-ZAR100m); this was partially offset by net buying in the R214 of +ZAR247m.
US Treasuries strengthened yesterday as yields fell in a bull steepening of the curve. At the short-end, the 2yr UST fell by 2.04 bps to a yield of 0.35% and the yield on the 5yr UST fell by 0.99 of a bp to 1.41%. At the longer-end, the 10yr note fell by 0.27 of a bp to a yield of 2.19% and the yield on the 30yr note fell by 0.23 of a bp to 2.97%. This morning, Treasuries are trading at stronger levels across the curve.
EM FI markets strengthened overall yesterday. 5yr local currency sovereign yields fell by 3.21 bps on average and 10yr yields fell by 1.14 bps on average. SA’s 5yr yield performed in line with its EM peers, with the yield declining by 3.00 bps. This was behind stronger moves recorded in Turkey (-16.00 bps), Indonesia (-9.00 bps) and Hungary (-7.00 bps). In contrast, 5yr notes in Russia (+6.11 bps), Thailand (+2.50 bps) and Poland (+2.30 bps) sold off.
EM currencies recorded a mixed performance yesterday. Amongst the moves stronger were the Indonesian rupiah, which appreciated by the largest increment of 0.64% yesterday on positive sentiment as the country’s newly elected President, Joko Widodo, was sworn into office. The SA rand recorded the second best performance, appreciating by 0.56%, followed by the Thai baht, which appreciated by 0.43%. In contrast, the Brazilian real sold off, depreciating by 1.19%, followed by a 0.78% depreciation in the Russian ruble.
Latest SA publications
Fixed Income Weekly: MTBPS week by Asher Lipson and Kuvasha Naidoo (17 October 2014)
Credit & Securitisation Weekly: Pick n Pay reports H1:15 results by Robyn MacLennan and Steffen Kriel (17 October 2014)
Credit & Securitisation Flash Note: Calgro M3 Holdings Ltd by Robyn MacLennan and Steffen Kriel (14 October 2014)
Fixed Income Weekly: Moody's still to act on SA by Asher Lipson and Kuvasha Naidoo (10 October 2014)
Fixed Income ALBI note: November ALBI reweighting; R2032 joins the index by Asher Lipson and Kuvasha Naidoo (10 October 2014)
Credit & Securitisation Weekly: S&P comments on Eskom package by Robyn MacLennan and Steffen Kriel (10 October 2014)
Fixed Income Trade Idea: Receive 3x6, 5x8 FRAs by Asher Lipson and Kuvasha Naidoo (8 October 2014)
South Africa: Credit: SA property sector: Challenging environment ahead for office and industrial sectors by Robyn MacLennan and Steffen Kriel (8 October 2014)
SA FX Weekly: Asymmetric risk by Marc Ground, Bruce Donald and Varushka Singh (6 October 2014)
Credit & Securitisation Monthly: Quarterly update – Q3 2014 by Robyn MacLennan and Steffen Kriel (3 October 2014)
Fixed Income Weekly: Revenue slightly behind, issuance well ahead by Asher Lipson and Kuvasha Naidoo (3 October 2014)
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