NFP data to keep markets on edge

Yesterday was a repeat of recent weeks; just when the rand appeared to find strength, ZAR selling in the 13.60- 13.80 range pushed it back above 13.90.
The rand traded between a low of USDZAR13.7171 and a high of USDZAR13.9356.

The weakness goes alongside precious metals which have experienced further downside, with platinum trading below $900 this morning and gold closing in on $1,100.
It goes without saying the market is nervous ahead of today’s US non-farm payroll data. According to Reuters expectations, non-farm payrolls are expected to increase from 173k in August to 203k in September, while unemployment is expected to remain flat at 5.1%.
Following non-farm payrolls data, markets tend to be volatile but generally we would expect the dollar to find some support if the number prints broadly in line with consensus. In fact, we think that the NFP prints would need to disappoint substantially before the dollar would come under pressure.
Yesterday’s release of the Barclays Manufacturing PMI saw the index increase, albeit only fractionally. The September PMI increased to 49.0 pts from 48.9 pts in August.
Vehicle sales growth contracted more-than-expected, by 9.0% y/y in September with a total of 55,322 vehicles sold compared to 60,782 vehicles sold in September 2014.

International developments

Yesterday was a repeat of what we have seen a few times in recent weeks; just when the rand appeared to find strength, ZAR selling in the 13.60-13.80 range and pushed it back above 13.90. The 14.00 level remains key resistance for the USDZAR.

The weakness goes alongside precious metals which have experienced further downside, with platinum trading below $900 this morning and gold closing in on $1,100. It goes without saying that the market is nervous ahead of today’s US non-farm payroll data. Sentiment towards EM is still negative, driven to some extent by lower commodity prices. The rand is both a commodity and EM currency.

All eyes will be on the US employment data today which is due out at 14h30. According to Reuters expectations, non-farm payrolls are expected to increase from 173k in August to 203k in September, while unemployment is expected to remain flat at 5.1%. We would also keep an eye on the y/y increase of the average hourly earnings of employees which is expected to rise to 2.4% y/y. Earnings estimates have steadily been rising. In 2012, the y/y growth rate was consistently below 2% and has now crept higher to print more often than not above 2%. Should consensus estimates be correct, it would be the strongest rise in earnings growth since August 2009.

Following this data release, markets tend to be volatile but generally we would expect the dollar to find some support if the number prints broadly in line with consensus estimates. In fact, we would think that the NFP prints would need to disappoint substantially before the dollar comes under pressure.

Asian markets are mixed this morning in anticipation of the US employment data out today. It also follows a mixed performance on Wall Street yesterday where the S&P closed 0.2% up and the Dow Jones closed 0.1% down. The Chinese markets are closed for holidays, but at the time of writing the Hong Kong Hang Seng was up 2.7%, and the Japanese Nikkei was down 0.4% despite good August consumer spending data out this morning. Household consumer spending increased to 2.9% y/y in August from a decline of 0.2% y/y in July, vastly exceeding expectations of an increase of 0.4%.

Local developments

Yesterday’s release of the Barclays Manufacturing PMI saw the index increase, albeit only fractionally. The September PMI increased to 49.0 pts from 48.9 pts in August, with the average for the quarter also remaining below the 50-benchmark line at 49.8 pts in Q3:15 from 49.2 pts in Q2:15. The performance across the sub-categories was mixed, with only four components of the index reflecting an increase in September. News sales orders remained above the 50-benchmark line in September, increasing to 51.9 pts from 50.6 pts in August, while the employment index edging closer to the 50-benchmark line. The business activity index continued falling in September, to 46.6 pts from 48.6 pts in August. The leading indicator moved past 1 for the first time this year and is indicative that production could pick up in the coming months.

Naamsa’s vehicle sales data for September was released yesterday. Bloomberg consensus was for vehicle sales to have contracted for the sixth consecutive month in September, falling by -7.3% y/y, from -8.2% y/y in August. In the event, vehicle sales growth contracted more than expected, by -9.0% y/y in September, with a total of 55,322 vehicles sold, compared to 60,782 vehicles sold in September 2014. Sales of passenger cars were down by 13.2% y/y in September. The declines were broad-based in September. Vehicle exports, however, increased by 14.3% y/y in September, with 35,181 vehicles exported to our major trading partners compared to 30,790 vehicles exported in September 2014 and 28,070 exported in August 2015. Vehicle sales are unlikely to gain significant momentum into Q4 on the back of weak domestic demand.

Markets

The rand weakened on Thursday, closing at 13.92, compared to Wednesday’s close of 13.85. The rand’s depreciation against the greenback occurred despite dollar weakness against some of the major currencies; the dollar posted losses against the euro (0.2%) and the pound, but gained marginally against the yen. The rand weakened against all of the major crosses; the rand lost ground against the euro (0.6%), the pound (0.5%) and the yen (-0.5%). The rand put in the worst performance amongst the commodity currencies we monitor, and put in the third-worst performance amongst EM currencies, only ahead of the IDR and BRL. The rand traded between a low of USDZAR13.7171 and a high of USDZAR13.9356.

Commodity prices were mixed on Thursday. Copper and gold were down by 1.3% and 0.1% respectively, while platinum was up by 0.1% on the day. Brent closed the day 1.4% lower, at $47.69/bbl. Both the developed world MSCI and the MSCI EM were up on the day, by 0.4% and 0.7% respectively. The ALSI was down by 0.8% on the day. Non-residents were net sellers (-ZAR1,432 billion) of equities on the day. The EMBI spread narrowed on Thursday by 5 bps, and SA’s 5yr CDS widened marginally. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 7.9%.

Latest SA publications

SA Macroeconomics: SARB keeps repo rate at 6.0%: Growth outlook deteriorates meaningfully, inflation largely unchanged by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (24 September 2015)

SA FIC Flash Note: SARB - hawkish statement with lower growth by Walter de Wet (23 September 2015)

SA Macroeconomics: SA CPI slows to 4.6% y/y: Core inflation falls to 5.3% y/y by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (23 September 2015)

SA FIC Weekly: SARB – a hawkish pause by Walter de Wet, Shireen Darmalingam and Penny Driver (21 September 2015)

SA Credit & Securitisation Weekly: Transnet’s acting CEO comments by Steffen Kriel (18 September 2015)

SA Macroeconomics: July retail sales grow 3.3% y/y, down from 3.8% y/y in June: General dealers and textiles together contribute 1.9 ppts by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (16 September 2015)

SA Macroeconomics: SA Q2 CAD narrows, retail sales slow in Jul & we await FOMC: PCE & Investment may disappoint by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (14 September 2015)

SA FIC Weekly: Key FOMC meetings matter by Walter de Wet, Shireen Darmalingam and Penny Driver (14 September 2015)

SA Macroeconomics: EMs see net outflows of USD4.6Bn in Aug; YTD flows are down 49%: SA equity inflows up 25.9% YTD; debt inflows down 27.3% YTD by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (11 September 2015)

SA Credit & Securitisation Weekly: Stangen offer price disclosed by Steffen Kriel (11 September 2015)

SA Macroeconomics: Manufacturing up 5.6% in July: Robust growth led by iron & steel and motor vehicles production by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (10 September 2015)

SA Macroeconomics: Mining grows 5.6% y/y in July: PGMs up 72% y/y on base effects from the H1:14 strike by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (10 September 2015)

SA FIC Flash Note: ALBI reweighting: duration set for small increase in October by Walter de Wet and Penny Driver (9 September 2015)

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