After a quiet domestic week, we look to US NFP

After showing some strength at the start of last week, the rand gave up most gains on Friday. The currency traded as low as 11.70 last week.
The 11.70 to 11.50 band remains strong support for the USDZAR. The 100day MA (currently at 11.7891) seems especially strong. Ahead of US non-farm payrolls on Friday, we expect this support to hold.
Recall that the March employment numbers came in well short of market expectations, which left the market second-guessing the sustainability of the US economic recovery.
For the April NFP print, Bloomberg expectations are for a headline print of 225K – up from 126K.
Turning to China, the latest Manufacturing PMI data, released on Friday showed that the manufacturing sector remains on the brink between expansion and contraction.
On the domestic front, South Africa’s trade balance for March beat expectations last Thursday. For Q1:15, the trade balance sits at a total deficit of -ZAR32.44bn. The trade balance of Q1:15 still wider than the -ZAR28.16bn seen in Q1:14.
After showing some strength at the start of last week, the rand gave up most gains on Friday. The currency traded as low as 11.70 last week. The 11.70 to 11.50 band remains strong support for the USDZAR. The 100day MA (currently at 11.7891) seems especially firm.

International developments

US bonds were under significant pressure on Friday as the bond market continues to sell off after the FOMC meeting on Wednesday. Perhaps the market was expecting a more dovish statement after the weak US GDP data for Q1:15. Although the statement did acknowledge the slowdown growth and inflation in Q1:15, the Committee still seems to expect growth to pick up and inflation to accelerate later this year. We still expect a 25 bps hike by the Fed in September.

We expect local and international events to be dominated by the US non-farm payrolls later this week. Ahead of these numbers, we would expect rand rallies to be short-lived as the market is likely to remain nervous. Recall that the March employment numbers came in well short of market expectations, which left the market second-guessing the sustainability of the US economic recovery.

For the April print, the Bloomberg expectations are for a headline print of 225K – up from 126K. If we get a print close to this number, we would expect the rand to come under pressure.

Turning to China, the latest Manufacturing PMI data, released on Friday, showed that the manufacturing sector remains on the brink between expansion and contraction. The official PMI number, which is weighted towards largely state controlled firms, came in at 50.1 – unchanged form 50.1 in March. However, the HSBC PMI print, which is weighted more towards smaller firms, was still in contractionary territory in April at 48.9 – down from 49.2 in March.

With China being the largest commodity consumer, and with almost 60% of South Africa’s merchandise exports being commodities, the rand would depend heavily on China’s demand for commodities in order to make a sustainable recovery.

Local developments

Locally, we are off to a quiet start, after a week disrupted by two holidays last week. Data-wise, there is the Kagiso PMI due for release today. We would look for the PMI data to confirm that the local manufacturing sector is still struggling for growth.

On the domestic front, South Africa’s trade balance for March beat expectations last week Thursday. The trade balance for the month came in at a surplus of ZAR0.5bn, compared expectations for a deficit of -ZAR6.5bn.

For Q1:15, the trade balance sits at a total deficit of -ZAR32.44bn. Although we would expect the current account deficit to compress in Q1:15 from the -5.1% of GDP seen in Q4:14, the compression may not be that great. The trade balance of Q1:15 still wider than the -ZAR28.16bn seen during the same quarter last year (despite all prices being much lower this year compared to Q1:14).

Latest SA publications

SA Macroeconomics: SA’s trade deficit to narrow: Global data continues to drive local and EM assets by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (27 April 2015)

Credit & Securitisation Weekly: Eskom’s acting CEO comments by Steffen Kriel (24 April 2015)

SA Macroeconomics: CPI surprises to the downside: Food inflation slowed to 5.9% y/y, and core to 5.7% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (22 April 2015)

SA Macroeconomics: March CPI to rise to 4.1% y/y: EM assets receive mixed signals from US & Chinese data by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (20 April 2015)

Credit & Securitisation Weekly: Escalating municipal electricity debt by Steffen Kriel (17 April 2015)

SA FX Weekly: ZAR: less undervalued and still vulnerable against the dollar by Marc Ground and Shireen Darmalingam (16 April 2015)

SA Macroeconomics: Feb retail sales 4.2% y/y, up from 1.9% y/y in Jan: General dealers grow 4.8% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (15 April 2015)

SA Macroeconomics: Risk on as global monetary policy remains accommodative: SA consumption expected to outpace production in February by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (13 April 2015)

Credit & Securitisation Monthly: Quarterly update: Q1 2015 by Steffen Kriel (10 April 2015)

SA FX Weekly: Dollar takes a breather by Marc Ground and Shireen Darmalingam (10 April 2015)

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