Standard Bank Research Team
Standard Bank
US consumer confidence up, inflation expectations down - last Friday’s University of Michigan’s consumer confidence index reached an eleven-year high in December.
After the SNB surprise last week, central banks remain in focus. The ECB looks set to start QE this week.
Greek elections on Sunday may add volatility to euro.
Today is Martin Luther King Jnr Day in the US, with the NYSE closed.
Locally we are off to a slow start today. However, we will be looking at CPI for December on Wednesday. We expect a print of 5.3% y/y, compared to Bloomberg consensus of 5.5%.
The rand remains within the 11.45 – 11.60 trading range seen since last week Monday.
Technicals for the rand suggest that support, from where the rand opened this morning, sits at 11.5300, 11.4500, 11.3900 and 11.3500. Resistance levels are at 11.5800, 11.6500 and 11.7400.
International developments
Last Friday’s University of Michigan’s consumer confidence index reached an eleven-year high, with the preliminary January reading climbing to 98.2 from 93.6 in the preceding month. This was way above analysts’ expectations (Bloomberg consensus: 94.1), and likely eased concerns over the strength of the US consumer after the disappointing December retail sales figures released earlier in the week.
Analysts are sure to take a keener interest in the inflation expectations component of the University of Michigan’s survey, which showed near-term expectations (over one-year) falling to 2.4% from 2.8% in December. Longer-term expectations (5 to 10 year), however, held steady, at 2.8%; the Fed will likely pay more attention to these long-term expectations in its decision-making.
On the international front, this week will clearly be dominated by the ECB meeting on Thursday and then the Greek election on Sunday. Among the data and events before then is the Eurozone current account and construction output data to be released today. Steve Barrow (our G10 FIC Strategist) thinks that neither is likely to move the markets, but that it is always worth watching out for the current account data in particular, just because this gives a guide to financial flows as well as trade flows. The flows in goods and services have improved dramatically in recent years. It seems likely that this will continue and it shows the difficulty the ECB has if it surreptitiously wants to help lower the euro. For essentially what it has to do is to drive rates down to such low levels that net financial flows not only counterbalance the current account surplus but impart a bias for the euro to weaken as well. Official rate cuts do this but the problem when rates get to (near) zero, forcing the central bank to move onto QE, is that investors, both domestic and foreign, may want to buy what the ECB buys, which stops the financial account from deteriorating in the way the ECB really needs to weaken the euro.
Local developments
Stats SA releases its November mining production data tomorrow at 11:30. The data is not expected to garner significant market reaction, but it is likely to shed some light with regard to whether Q4:14 GDP growth will suffer further negative contributions from this sector. Bloomberg consensus estimates mining production to have contracted by 0.3% y/y in November from the 1.1% y/y contraction in October.
This week also sees the release of the final CPI data print for December and the final CPI average for 2014. Stats SA releases the data at 10:00 on Wednesday. Bloomberg consensus expectations is for CPI to have moderated to 5.5% y/y in December. Standard Bank’s view is for CPI to come in at 5.3% y/y from 5.8% y/y in November. This would result in an average for the year print of 6.1%. Our economist Kim Silberman attributes the moderation (in large part) in the December print to the lower petrol price, which fell from R12.98/l to R12.29/l. On its own this shaved 0.38ppts off November’s 5.8% y/y inflation rate. Petrol fell a further 127c/l in January 2015, which, all things being equal, will shave 0.7ppts off December’s inflation rate. Kim also expects a moderation in food prices in December, from 7.7% y/y to 7.1%y/y, accounting for another 0.09ppt reduction in CPI.
Markets
The rand strengthened somewhat on Friday, closing at USDZAR11.55, compared with Thursday’s close of USDZAR11.56. Rand appreciation against the dollar occurred despite dollar strength against all of the major crosses; the dollar strengthened against the yen (1.2%), the euro (0.6%) and the pound (0.2%). The rand strengthened against all of the other major crosses, with the biggest increase seen against the yen (1.3%). The rand put in the second-best performance amongst the commodity currencies we monitor (behind the NOK), but the fourth-worst performance in the EM space, ahead of the RUB, IDR and TRY. The rand traded between a low of USDZAR11.5123 and a high of USDZAR11.6133 intraday.
Commodities were up on the day. Copper increased by 1.5%, while gold and platinum increased by 1.4% and 0.6% respectively. Brent was up significantly, increasing by 5.2% to close at $50.17/bbl. Oil prices were buoyed by an International Energy Agency (IEA) report indicating that there were already signs that lower prices were curbing production and that “a rebalancing [of the oil market] may begin to occur in the second half of the year”. The developed market MSCI was up by 0.8% on Friday, while the MSCI EM was down by 0.3% on the day. The ALSI decreased by 0.2% on the day. Non-residents were net sellers of equities on Friday (-ZAR1 091 million). The EMBI spread narrowed by 4 bps, while SA’s 5yr CDS spread widened by 11 bps. The CBOE VIX index, a volatility-based proxy for global risk appetite/aversion, decreased by 6.4% yesterday.
Latest SA publications
SA Fixed Income Weekly: Disinflation in H1 2015 by Asher Lipson (16 January 2015)
Credit & Securitisation Weekly: Mounting pressure on Eskom by Steffen Kriel and Varushka Singh (16 January 2015)
SA Fixed Income ALBI note: ALBI MD to increase in February by Asher Lipson (9 January 2015)
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