Looking for some support for the ZAR from the trade balance

• Global equities are on the front foot again, with all major European indices and the S&P and Dow closing higher yesterday. In Asia this morning, most major indices are following on from where the US left off.

• The JSE All Share closed 1.3% higher yesterday. The R186 closed 7 bps higher, at 7.90%. US 10-year bond yields remain largely unchanged around 1.95%.

• FRAs are now fully pricing in a 50 bps point hike by December.

• The rand continues to fight a strong dollar, with the 12.00 level still key support.

• Locally, we look at February’s trade balance due for release at 14h00 today. We expect a small surplus of R1.2bn. Bloomberg median consensus is for a -R5.7bn print.

• A surplus print in the trade balance is likely to add some support to the rand. That said, we won’t expect major moves ahead of Friday’s US employment data and Easter weekend.

• We look at the March manufacturing PMI data due for release on Wednesday. Key manufacturing prints will be China and the US. Consensus expects China’s PMI to remain below 50 and the US PMI to remain unchanged from February at a healthy 55.3.

• Yesterday’s data on US personal income and spending was mixed. Personal income grew faster in February than anticipated, at 0.4% m/m.

• On the inflation front, the US headline figure for PCE inflation came in as anticipated. The core measure surprised to the upside at 1.4% y/y. PCE inflation is the Fed’s preferred measure of consumer inflation from a policy calibration point of view. We still expect a Fed rate hike in September.

International developments

Yesterday’s data on US personal income and spending was mixed. Personal income grew faster in February than anticipated at 0.4% m/m (Bloomberg consensus: 0.3% m/m), with January’s increase revised up to match this – that is, to 0.4% m/m from 0.3% m/m. Personal spending growth disappointed, coming in at 0.1% m/m against expectations for a 0.2% m/m gain. On the inflation front, the headline figure for PCE inflation came in as anticipated at 0.3% y/y in February, slightly up from the 0.2% y/y recorded for January. The core measure surprised to the upside at 1.4% y/y, compared to the consensus of 1.3% y/y. PCE inflation is the Fed’s preferred measure of consumer inflation from a policy calibration point of view. We still expect a Fed rate hike in September.

Sticking with inflation, we have preliminary numbers on Eurozone CPI today. There was nothing too surprising in yesterday’s German CPI data. The harmonized measure, which feeds into calculation of overall Eurozone CPI inflation, pulled out of deflationary territory as anticipated (+0.1% y/y from -0.1% y/y). For today’s Eurozone data, the headline figure for March is seen remaining in deflationary territory, although moving in the right direction at -0.1% y/y, compared to the -0.3% y/y seen in February. The reading on core is expected to remain steady at 0.7% y/y. Eurozone unemployment data will be published at the same time as the CPI numbers. The unemployment rate for February is seen holding steady at the 11.2% recorded in January.

Local developments

SARS releases the February trade balance data today at 14h00. Bloomberg consensus expectations has pencilled in a narrowing of the trade deficit to -ZAR6.0 billion in February from a massive -ZAR24.2 billion in January. Our economist, Kim Silberman, estimates a trade surplus of ZAR1.2 billion in February 2015 versus a surplus of ZAR647 million in February 2014. Kim notes that seasonally imports almost always contract in February versus January’s levels. In addition, she expects y/y growth in the value of imports in February will slow due to the 43% y/y fall in the rand price of oil. Imports grew 10.9% y/y in February 2014 and may grow between 3% and 4% y/y in February 2015. The global dollar price of South Africa’s top four commodity exports fell dramatically (again) in February; Iron fell 48% y/y, gold -0.9% y/y, platinum -13% y/y and coal -23% y/y. This will dampen any volume recovery in exports.

The SARB released the February M3 and private sector credit extension data yesterday. M3 came in ahead of Bloomberg consensus expectations. M3 growth registered 8.11% y/y in February (versus expectations of 7.64% y/y) from 7.35% y/y in January. Growth in PSCE, however, fell short of expectations, with PSCE moderating to 8.67% y/y in February (versus expectations of 8.85% y/y) from 9.15% y/y. Credit extended to households continued to moderate in February to 3.3% y/y from 3.5% y/y in January. There was also a moderation in credit extended to corporates; growth, however, double-digit growth remains. Corporate PSCE growth slipped to 14.5% y/y in February from 15.4% y/y in January.

Markets

The rand weakened further on Monday, with the local currency closing at 12.15, compared to Friday’s close of 12.15. The rand’s depreciation against the greenback occurred in line with dollar strength against all of the major currencies; the dollar posted the largest gains against the yen (0.8%), euro (-0.5%) and the pound (-0.5%). The rand also lost ground against all of the major crosses; the pound (0.4%), the euro (0.4%) and the yen (-0.1%). The rand put in a mixed performance amongst the commodity currencies we monitor for purposes of this report, but put in the worst performance amongst the EM currencies. The rand traded between a low of USDZAR12.0196 and a high of USDZAR12.1682 intraday.

Metal prices were mixed on Monday. Platinum and gold were down by 1.5% and 1.1% respectively, while copper was up by 0.5% on the day. The price of Brent decreased on Monday, by 0.2%, to close lower at $56.29/bbl. Both the developed world MSCI and the MSCI EM were up on the day, by 0.7% and 1.1% respectively. The ALSI was up by 1.2% on the day. Non-residents were net buyers of equities (ZAR1 970 million) on Monday. The EMBI spread narrowed by 1 bp and SA’s 5yr CDS widened by 5 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 3.7%.

Latest SA publications

SA Macroeconomics: Economics Note: Weaker growth, higher inflation, unchanged repo rate: Hawkish tone, but SARB's outlook still does not justify a hike by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (27 March 2015)

SA Fixed Income MPC Comment: Defending not to hike by Asher Lipson and Walter de Wet (26 March 2015)

SA FI ALBI note: Auctions pressure the ALBI by Asher Lipson (25 March 2015)

SA FX Weekly: USDZAR trading now in a weaker range by Marc Ground and Shireen Darmalingam (24 March 2015)

SA Macroeconomics: Economics Note: The SARB to remain on hold: Manufacturing & mining contract in January; the Fed is no longer “patient”; and S&P downgrades Eskom to speculative grade by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)

Credit & Securitisation Weekly: S&P downgrades Eskom by Steffen Kriel and Varushka Singh (20 March 2015)

SA FI Weekly: Little local driver to bonds by Asher Lipson (20 March 2015)

SA Macroeconomics: Economics Note: Jan retail sales slowed to 1.7% y/y from 2.0% y/y in December: General dealers -2.5% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)

SA Macroeconomics: Economics Note: CPI falls to 3.9% y/y: Services and food remain sticky by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)

SA Macroeconomics: Economics Note: CAD narrows to 5.1% of GDP: Trade data a positive surprise by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 March 2015)