Standard Bank Research Team
Standard Bank
Yesterday was overall a positive day for equity markets, with the Dow and the S&P closing higher in the US. European equities were also higher across the board.
The ECB president is slightly more upbeat on the Eurozone economy providing additional support to equities in Europe. The ECB is due to start with their QE programme this month.
Locally, the All Share Index closed 0.8% higher, only a 100bps shy of the all-time high. Local bonds also received marginal support, with the R186 closing 8bps lower at 7.70%.
That said, the rand continues to struggle as today’s US non-farm payrolls weigh, combined with domestic factors, weigh on the currency. That said, it is not only the rand, but EM currencies in general are under pressure against the dollar.
The rand’s depreciation against the greenback occurred in line with dollar strength against all of the majors too; the dollar posted the largest gain against the euro and yen.
On the US payroll report, the consensus is for a rise of 235k according to the Bloomberg survey.
The market is split between the Fed hiking rates in July or September at this point. Should the overall employment data set prove to be good, consensus may shift towards July.
Generally, we believe that the ZAR is pricing a hike in the US already, but good employment data in today is likely to put the dollar on the front foot.
Next week is a busy data week, with domestic mining and manufacturing production for January due for release.
International developments
As yesterday’s post-meeting press conference, ECB President Draghi spoke in more optimistic terms about the economy — as we might have expected in light of recent data. The ECB also increased its growth forecasts. On inflation, the ECB has released a 2017 forecast for the first time, and it is at 1.8%, following on from predicted 1.5% for 2016 and zero this year.
The question is whether this is a sufficient movement towards the 2.0% target to mean that QE is likely to end in September 2016, as the current plan suggests. If 2017 CPI had been put at 2.0%, or above, the market would feel more confident about a September 2016 end but, at just below 2.0%, the market might be a bit more equivocal and hence the euro should remain under pressure. In commenting on QE Draghi says the ECB will buy bonds with negative yields down the deposit rate (which is currently -0.2%). It's something that could clearly provide an argument for a cut in the deposit rate in the future, if yields fall and the ECB is forced to lower the rate to bring more bonds into its domain.
There’s quite a bit of data out today on the international calendar but presumably there’s only one that the market is really interested in; the US payrolls report.
The consensus is for a rise of 235k according to the Bloomberg survey. There’s a slight skew to the downside in these predictions. Steve Barrow (our G10 FIC Strategist) also thinks that the data could fall a bit short of expectations. However, the significance of payroll data clearly seems to be diminishing relative to wage numbers and here he has little disagreement with the market consensus for a 0.2% m/m rise in hourly earnings. But here the skew among the 59 analysts in the Bloomberg survey is to the high side and it is much more significant than the one for payrolls.
Last month’s wage gain was very firm at 0.5% m/m and another above-consensus print here could make the market a bit more confident that the Fed will drop the “patient” attitude it has taken towards tighter policy at the 17 to 18 March FOMC meeting. The unemployment rate is seen dropping down to 5.6% from 5.7%. Here, too, we would tend to agree with the consensus.
Markets
The rand weakened against the dollar on Thursday, closing at 11.84, compared to Wednesday’s close of 11.81. The rand’s depreciation against the greenback occurred in line with dollar strength against all of the majors; the dollar posted the largest gain against the euro and yen. In terms of the other major crosses, the rand managed to strengthen against the euro by -0.2%, but lost ground against the dollar and the pound. The rand put in the fourth-worst performance amongst the commodity currencies we monitor for purposes of this report, ahead of BRL, MXN and the TRY. The rand, however, put in the second-best performance amongst EM currencies, only behind the NOK. The rand traded between a low of USDZAR11.7309 and a high of USDZAR11.8763 intraday.
Metal prices were down on Thursday. Platinum and gold were down by 0.3% and 0.2% respectively while copper was down by 0.1% on the day. Brent fell by 0.1% on Thursday to close at $60.48/bbl. The developed market MSCI was up by 0.2% on Thursday while the MSCI EM was down by 0.2% on the day. The ALSI was up by 0.7% on the day. Non-residents were net buyers of equities (ZAR419 million). The EMBI widened by 2 bps and SA’s 5yr CDS spread narrowed by 2 bps on the day. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 1.3%.
Latest SA publications
SA Macroeconomics: Economics Note: Monetary policy divergence continues: PPI declines, the Fed remains patient, and Rating Agencies respond to the Budget by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (2 March 2015)
SA Macroeconomics: Economics Note: Jan trade balance –R24Bn: Exports -14%, imports -3.6% by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (27 February 2015)
SA Macroeconomics: Economics Note: Jan private credit 9.2% y/y: Household credit slowed to 3.5% by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (27 February 2015)
Credit & Securitisation Weekly: Eskom in National Budget by Steffen Kriel and Varushka Singh (27 February 2015)
SA Macroeconomics: Economics Note: Fiscal slippage & tax increases: GDP revisions lower debt to GDP by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (26 February 2015)
SA Fixed Income Budget note 2015 Budget: Trying to stick to MTBPS forecasts by Asher Lipson, Walter de Wet and Shireen Darmalingam (26 February 2015)
SA Macroeconomics: Economics Note: 2014 GDP 1.5% y/y, 1.3% q/q: Q4:14 outperforms post strikes by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 February 2015)
SA Fixed Income Trade Idea: Time to receive 8x11 FRA by Asher Lipson (24 February 2015)
Credit & Securitisation Flash Note: Curro Holdings Ltd by Steffen Kriel (23 February 2015)
SA FX Weekly: Budget 2015: time to deliver by Marc Ground and Shireen Darmalingam (23 February 2015)
SA Macroeconomics: Economics Note: 2015 Budget: commitment to consolidation: GDP, Budget, PSCE, PPI & Trade data to be released this week by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (23 February 2015)
Credit & Securitisation Weekly: Upcoming National Budget by Steffen Kriel and Varushka Singh (20 February 2015)
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