Standard Bank Research Team
Standard Bank
EM and commodity currencies in general are under pressure in line with commodity prices. The rand tested the 12.75 level after US GDP data showed marginally below consensus GDP growth for Q2:15 yesterday (at 2.3% q/q SAAR).
The rand traded between a low of USDZAR12.5323 and a high of USDZAR12.7540.
Today will be a busy day on the weekly calendar, with the market focusing not only the South African trade balance, but also on the US where the University of Michigan inflation expectations and consumer sentiment indices are due for release.
From a US perspective we have a particular interest in the 5 – 10 year expectations survey. The previous print for June came in at 2.7%, up from 2.6% in May, while the preliminary print earlier this month showed the print for July should come in unchanged at 2.7% despite the drop in oil prices.
Looking ahead next week Friday will see the release of US employment data which is always a market mover. There will also be the Manufacturing PMI indices where we will have a particular interest in the China data which is expected to remain broadly unchanged at 50.1.
All eyes will be on the June trade data which is due for release at 14h00. Bloomberg consensus expectations are for the trade balance to remain in surplus territory at ZAR3.6bn from ZAR5.0bn in May. Standard Bank expects the trade surplus to have moderated to ZAR4.4bn in June.
International developments
EM and commodity currencies in general are under pressure in line with commodity prices. The rand tested the 12.75 level after US GDP data showed marginally below consensus GDP growth for Q2:15 yesterday (at 2.3% q/q SAAR). But perhaps more important, Q1:15 data was adjusted upwards to 0.6% q/q SAAR from the initial contraction of -0.2% q/q SAAR. Consumer spending was also firm at 2.9% and price indices a bit higher than consensus. The rand remains in the back foot. We expect support for the USDZAR at 12.5800 and 12.5250. Resistance is at 12.7000 and 12.8000.
Today will be a busy day on the weekly calendar, with the market focusing not only the South African trade balance, but also on the US where the University of Michigan inflation expectations and consumer sentiment indices are due for release. We would expect a strong trade balance number for South Africa to provide support to the rand, but in the current environment it may well be dominated by international developments especially if one looks down to the calendar into today and next week.
From a US perspective we have a particular interest in the 5 – 10 year expectations survey. The previous print for June came in at 2.7%, up from 2.6% in May, while the preliminary print earlier this month showed the print for July should come in unchanged at 2.7% despite the drop in oil prices. From a Fed perspective the survey is important as they tend to focus on the long term inflation expectations.
We would also look with particular interest at the consumer sentiment index which is expected to come in at 94, up from 93.3. Recall that earlier this week we saw the Conference Board consumer confidence index drop well below expectations (which was at 100) to 90.9. A print in the University of Michigan consumer confidence index today which is in line with expectations may see more support for the dollar return.
Although the market is firmly focused on the US at this stage, the Eurozone CPI estimate for June may attract some attention. The y/y estimate is at 0.2% which should be a positive outcome for the Eurozone where they have been fighting deflation. From a rand perspective however we would expect little reaction.
Looking ahead next week Friday will see the release of US employment data which is always a market mover. There will also be the Manufacturing PMI indices where we will have a particular interest in the China data which is expected to remain broadly unchanged at 50.1.
Local developments
All eyes will be on the June trade data which is due for release at 14h00. Bloomberg consensus expectations are for the trade balance to remain in surplus territory at ZAR3.6bn from ZAR5.0bn in May. Standard Bank expects the trade surplus to have moderated to ZAR4.4bn in June. SBGS economist, Kim Silberman, notes that the forecast assumes a 2.5% m/m contraction in the volume of non-mineral imports, in line with an estimated 4.4%m/m contraction in non-mineral import volumes in May. She further notes that the fall in global commodity prices is net negative for SA’s terms of trade. SA’s commodity exports account for between 55% and 60% of total exports whereas commodity imports account for between 20% and 25% of total imports.
Kim points out that weak domestic demand is having a contractionary effect on imports such that non-mineral imports have contracted month-on-month for 3 of the 5 months YTD. Due to base effects, the volumes of commodity exports that were affected by strikes last year are growing at over 10% y/y. In addition, vehicle exports are also experiencing positive base effects as a result of the 1H2014 Mercedes Benz factory shut down and the subsequent upgrade which has increased export capacity in 2015. Nonetheless, electricity shortages and load shedding continue to constrain exports, particularly manufacturing sector exports.
Markets
The rand weakened further on Thursday, closing at 12.70, compared to Wednesday’s close of 12.54. The rand’s depreciation against the greenback occurred in line with dollar strength against most of the major currencies; the dollar posted gains against the euro (-0.5%) and the yen (0.2%). The rand lost ground against all of the major crosses; the pound (1.2%), the yen (-1.1%) and the euro (0.8%). The rand put in the worst performance amongst the commodity currencies we monitor for purposes of this report, and put in the second-worst performance amongst the EM currencies, behind ahead of the RUB. The rand traded between a low of USDZAR12.5323 and a high of USDZAR12.7540.
Commodity prices were down on Thursday. Copper and gold were down on Thursday, by 1.3% and 0.8% respectively. Platinum was up 0.2% on the day. Brent closed the day 0.1% lower, at $53.31/bbl. Both the developed world MSCI and the MSCI EM were down on Thursday, by 0.1% and 0.7% respectively. The ALSI was up by 0.3% on the day. Non-residents were net buyers (ZAR731 million) of equities on Thursday. The EMBI spread narrowed by 1 bp on Thursday, and SA’s 5yr CDS widened by 1 bp. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 3.0%.
Certification
The analyst(s) who prepared this research report (denoted by an asterisk*) hereby certifies(y) that: (i) all of the views and opinions expressed in this research report accurately reflect the research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part of the analyst’s(s’) compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research report.
Conflict of Interest
It is the policy of The Standard Bank Group Limited and its worldwide affiliates and subsidiaries (together the “Standard Bank Group”) that research analysts may not be involved in activities in a way that suggests that he or she is representing the interests of any member of the Standard Bank Group or its clients if this is reasonably likely to appear to be inconsistent with providing independent investment research. In addition research analysts’ reporting lines are structured so as to avoid any conflict of interests. For example, research analysts cannot be subject to the supervision or control of anyone in the Standard Bank Group’s investment banking or sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research analyst’s published research. Therefore, the proprietary interests of those sales and trading departments may conflict with your interests.
Legal Entities
To U. S. Residents
Standard New York Securities, Inc. is registered with the Securities and Exchange Commission as a broker-dealer and is also a member of the FINRA and SIPC. Standard Americas, Inc is registered as a commodity trading advisor and a commodity pool operator with the CFTC and is also a member of the NFA. Both are affiliates of Standard Bank Plc and Standard Bank of South Africa. Standard New York Securities, Inc is responsible for the dissemination of this research report in the United States. Any recipient of this research in the United States wishing to effect a transaction in any security mentioned herein should do so by contacting Standard New York Securities, Inc.
To South African Residents
The Standard Bank of South Africa Limited (Reg.No.1962/000738/06) is regulated by the South African Reserve Bank and is an Authorised Financial Services Provider.
To U.K. Residents
Standard Bank Plc is authorised and regulated by the Financial Services Authority (register number 124823) and is an affiliate of Standard Bank of South Africa. The information contained herein does not apply to, and should not be relied upon by, retail customers.
To Turkey Residents
Standard Unlu Menkul Degerler A.S. and Standard Unlu Portfoy Yonetimi A.S. are regulated by the Turkish Capital Markets Board (“CMB”). Under the CMB’s legislation, the information, comments and recommendations contained in this report fall outside of the definition of investment advisory services. Investment advisory services are provided under an investment advisory agreement between a client and a brokerage house, a portfolio management company, a bank that does not accept deposits or other capital markets professionals. The comments and recommendations contained in this report are based on the personal opinions of the authors. These opinions might not be appropriate for your financial situation and risk and return preferences. For that reason, investment decisions that rely solely on the information contained in this presentation might not meet your expectations. You should pay necessary discernment, attention and care in order not to experience losses.
To Singapore Residents
Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.
Important Regional Disclosures
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company(ies) within the past 12 months.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors:
The non-U.S. research analysts (denoted by an asterisk*) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts (denoted by an asterisk*) may not be associated persons of Standard New York Securities Inc. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Each analyst (denoted by an asterisk*) is a Non-U.S. Analyst. The analyst is a research analyst employed by The Standard Bank Group Limited.
General
This research report is based on information from sources that Standard Bank Group believes to be reliable. Whilst every care has been taken in preparing this document, no research analyst or member of the Standard Bank Group gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy or completeness of the information set out in this document (except with respect to any disclosures relative to members of the Standard Bank Group and the research analyst’s involvement with any issuer referred to above). All views, opinions and estimates contained in this document may be changed after publication at any time without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors or any particular class of investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Members of Standard Bank Group may act as placement agent, advisor or lender, make a market in, or may have been a manager or a co-manager of, the most recent public offering in respect of any investments or issuers referenced in this report. Members of the Standard Bank Group and/or their respective directors and employees may own the investments of any of the issuers discussed herein and may sell them to or buy them from customers on a principal basis. This report is intended solely for clients and prospective clients of members of the Standard Bank Group and is not intended for, and may not be relied on by, retail customers or persons to whom this report may not be provided by law. This report is for information purposes only and may not be reproduced or distributed to any other person without the prior consent of a member of the Standard Bank Group. Unauthorised use or disclosure of this document is strictly prohibited. By accepting this document, you agree to be bound by the foregoing limitations. Copyright 2011 Standard Bank Group. All rights reserved.
Recommended Content
Editors’ Picks
EUR/USD trades with negative bias, holds above 1.0700 as traders await US PCE Price Index
EUR/USD edges lower during the Asian session on Friday and moves away from a two-week high, around the 1.0740 area touched the previous day. Spot prices trade around the 1.0725-1.0720 region and remain at the mercy of the US Dollar price dynamics ahead of the crucial US data.
USD/JPY jumps above 156.00 on BoJ's steady policy
USD/JPY has come under intense buying pressure, surging past 156.00 after the Bank of Japan kept the key rate unchanged but tweaked its policy statement. The BoJ maintained its fiscal year 2024 and 2025 core inflation forecasts, disappointing the Japanese Yen buyers.
Gold price flatlines as traders look to US PCE Price Index for some meaningful impetus
Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces. The weaker US GDP print and a rise in US inflation benefit the metal amid subdued USD demand. Hawkish Fed expectations cap the upside as traders await the release of the US PCE Price Index.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US economy: Slower growth with stronger inflation
The US Dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.