Standard Bank Research Team
Standard Bank
The rand remains hostage to not only local but also global market forces. This week is likely to be no different as we await important international data releases. After depreciating to 13.30 on Friday, the rand is steady this morning around that level.
Asian markets took a tumble again today due in part to the expectations of a downward move in China’s manufacturing PMI data for August which is to be released tomorrow, and also due to the fact that Beijing has indicated that they would stop large-scale share purchasing as a method of propping up the markets.
The US Federal Reserve annual meeting at Jackson Hole took place over the weekend; the turmoil in China appears to have left the Fed divided about when to hike rates.
On Friday the US will release the monthly employment figures for August. Ahead of this data release, we would expect the rand to remain on the back foot. Bloomberg consensus is for the headline change in non-farm payrolls to come in at 208K, marginally lower than the 210K seen in August. However, the Reuters poll has non-farm payrolls coming in at 220K.
SARS releases the July trade balance today at 14h00. Bloomberg consensus is pencilling in a deficit of -ZAR1.6 billion in July from a surplus of ZAR5.8 billion in June, while the Reuters poll predicts a surplus of ZAR1.5 billion. Our Standard Bank economics team, however, believe that we will see a third consecutive trade surplus in July, of ZAR2.0 billion.
A trade surplus would be rand-positive, although we would expect the currency to be dominated by international events, in particular the US non-farm payrolls on Friday.
International developments
The rand remains hostage to not only local but also global market forces. This week is likely to be no different as we await important international data releases. After depreciating to 13.30 on Friday, the rand is steady this morning around that level. We may need to wait until this afternoon before markets start moving given the UK Bank Holiday today.
Asian markets took a tumble again today due in part to the expectations of a downward move in China’s manufacturing PMI data for August which is to be released tomorrow, and also due to the fact that Beijing has indicated that they would stop large-scale share purchasing as a method of propping up the markets. At the time of writing, the Shanghai Composite was down 2.8%, the Shenzhen Composite was down 2.4%, the Japanese Nikkei was down 1.8% and the Hong Kong Hang Seng was down 0.7%. After closing Friday almost flat on the day, this morning US equity futures are marginally lower than they were at Friday’s close.
The US Federal Reserve annual meeting at Jackson Hole took place over the weekend; the turmoil in China appears to have left the Fed divided about when to hike rates. FOMC members have indicated that they still expect inflation to move higher over the medium term. Standard Bank still expects the Fed to wait until December to hike rates despite the uncertainty about global growth.
Looking further down the week, tomorrow sees the release of manufacturing PMI data for August. China’s PMI will be of particular interest due to the slide in Chinese equities. Bloomberg consensus expectations are for the official China manufacturing PMI to come in at 49.7 pts, down from 50 pts in July. A weak China PMI print would add to growth concerns over China and should be read as rand-negative but rates-positive for South Africa.
On Friday the US will release the monthly employment figures for August. Ahead of this data release, we would expect the rand to remain on the back foot. Bloomberg consensus is for the headline change in non-farm payrolls to come in at 208K, marginally lower than the 210K seen in August. However, the Reuters poll has non-farm payrolls coming in at 220K. The data remains an important gauge for the path of US monetary policy. Comments made by several Fed officials this weekend at the Jackson Hole conference indicates that the Fed still expects inflation to move higher over the medium term despite recent market volatility. We expect the Fed to hike in December.
Local developments
It’s a busy week on the local front, with SARS releasing the July trade balance today at 14h00. Bloomberg consensus is pencilling in a deficit of -ZAR1.6 billion in July from a surplus of ZAR5.8 billion in June, while the Reuters poll predicts a surplus of ZAR1.5 billion. Our Standard Bank economics team, however, believe that we will see a third consecutive trade surplus in July, of ZAR2.0 billion. This would also compare favourably to a print of -ZAR6.8 billion in July last year. Although the YTD trade balance is still in deficit at -ZAR23.7 billion, it is smaller than the -ZAR55.3 billion seen during the first six months of 2014. The compression in the trade deficit would be due to base effects due to strikes but arguably also due to rand weakness.
A trade surplus would be rand-positive, although we would expect the currency to be dominated by international events, in particular US non-farm payrolls on Friday.
The Barclays Manufacturing PMI data for August is due for release tomorrow at 11h00. Recall: the July numbers overshot Bloomberg consensus expectations, coming in at 51.4 pts in July, the same as in June. The BER noted, however, that only 4 of the 9 sub-components of the Index had improved in July. Notably, business activity, one of the major sub-components of the index, increased in July, to 53.2 pts from 51.7 pts in June. Inventories improved to the highest level since January 2015, to 60.2 pts in July from, 56.8 pts in June. Bloomberg consensus is now pencilling in a slippage in the index to 51.1 pts in August. Standard Bank also releases the PMI data for August on Wednesday at 09h15. The index is expected to have increased in August, after having slipped fractionally in July.
Naamsa’s release of the vehicle sales data tomorrow is expected to reflect an industry that is struggling to make gains. The Bloomberg consensus polls are indicative of yet another y/y contraction of -4.1% in August, from -6.1% y/y in July.
Fiscal figures for July swelled to a deficit of -ZAR71.76 billion. This compares with a surplus of -ZAR24.21 billion in June, but is not far off the deficit of -ZAR69.57 billion in July 2015. In the year-to-date, the deficit stands at -ZAR107.51 billion compared to -ZAR104.36 billion in the comparable period in 2014. Revenue collections fell from ZAR116.08 billion in June to ZAR69.76 billion (or 28.4% of the Budget estimate) in July, while expenditure increased to ZAR141.51 billion (or 33.1% of the Budget estimate) in July from ZAR91.87 billion in June.
Bloomberg consensus was pencilling in a PSCE print of 8% y/y in July, down from 8.14% y/y in June. YTD the average growth rate of PSCE is 8.90% y/y. This compares with an average growth rate of 8.70% y/y for 2014. In the event, PSCE came in at 8.38% y/y in July. From an FX and fixed income perspective, our main interest with PSCE lies in what PSCE implies for the exchange rate pass through (ERPT). Our analysis shows that PSCE may be a key indicator of pressures on the ERPT. Any sharp pick-up on PSCE may be an indication that the ERPT is about to push higher.
Markets
The rand weakened on Friday, closing at 13.30, compared to Thursday’s close of 13.14. The rand’s depreciation against the greenback occurred in line with dollar strength against all of the major currencies; the dollar posted gains against the yen (0.6%), the euro (-0.6%) and the pound (-0.1%). The rand weakened against all of the major crosses; the rand lost ground against the pound (1.1%), the euro (0.7%) and the yen (-0.6%). The rand put in the worst performance amongst both the commodity currencies we monitor for purposes of this report and amongst the EM currencies. The rand traded between a low of USDZAR13.1149 and a high of USDZAR13.3492.
Commodity prices were mixed on Friday. Platinum and gold were up on Friday, by 1.8% and 0.8% respectively, while copper was down 0.1% on the day. Brent closed the day 5.2% higher, at $50.05/bbl. Both the developed world MSCI and the MSCI EM were up by 0.5% and 0.9% respectively on Friday. The ALSI was up by 1.7%. Non-residents were net buyers (ZAR1.738 billion) of equities on the day. The EMBI spread narrowed on Friday, by 5 bps, and SA’s 5yr CDS widened by 3 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 0.2%.
Latest SA publications
SA FIC Weekly: Stagflation squeeze to tighten by Walter de Wet, Shireen Darmalingam and Penny Driver (31 August 2015)
SA Credit & Securitisation Weekly: Eskom’s coal contract in dispute by Steffen Kriel (28 August 2015)
SA FIC Trade Idea: SAGBs long-end looks like value by Walter de Wet (26 August 2015)
SA Macroeconomics: Mining grows 4.0% in June: Q2:15 contracts 2.0% q/q by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (25 August 2015)
SA Macroeconomics: SA GDP disappoints, -1.3% q/q: Broad based weakness, agric & trade far worse than expected by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (25 August 2015)
SA FIC Weekly: Yields – when the rand blows, and the SARB is forced to hike by Walter de Wet, Shireen Darmalingam and Penny Driver (24 August 2015)
SA Credit & Securitisation Flash Note: Robust ACSA FY:15 results — but regulatory concerns linger by Steffen Kriel (20 August 2015)
SA Macroeconomics: Eskom Holdings SOC Ltd: Fragile liquidity position by Steffen Kriel and Kim Silberman (18 August 2015)
SA Credit & Securitisation Flash Note: Eskom Holdings SOC Ltd by Steffen Kriel and Kim Silberman (18 August 2015)
SA Macroeconomics: SA's terms of trade under increasing pressure in 2H2015 : We consider SA's TOT under 3 commodity price scenarios by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (18 August 2015)
SA FIC Weekly: When China devalues by Walter de Wet, Shireen Darmalingam and Penny Driver (17 August 2015)
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.