Standard Bank Research Team
Standard Bank
Rand is trading well below 12.00 again. This psychological support level was overcome just before the US trading started yesterday.
The gains made by the rand were largely due to dollar weakness rather than rand strength.
EM currencies in general strengthened, with the BRL and TRY also gaining ground. The euro too is stronger against the dollar.
Risk appetite has improved substantially since Friday; the VIX index is now close to the lows seen this year and equities in general have been performing well the past few days.
We await the MPC meeting which starts tomorrow and ends on Thursday.
We expect the SARB to provide a hawkish statement but keep the repo rate unchanged. All else being equal, this should be rand-positive from an interest rate differential perspective.
As pointed out in our FX Weekly last week, we are reluctant to chase the spot rate in the short term. Since Friday, we have seen how fast the currency can turn around.
On the international front, the main data release would be US CPI for February. January already saw deflation in the US, with January coming in at -0.1% y/y. Bloomberg consensus is for -0.1% y/y in February.
An inflation print below expectations may add further rand strength.
Support for the USDZAR should come in at 11.87, 11.7500 and 11.6700. Resistance is at 11.9600 and then 12.150.
International developments
On the international data front, it’s a day for CPI releases, with numbers from the UK and US. In the UK, the m/m rise of 0.3% would leave the y/y rate at just 0.1%, according to the median forecast. That’s below the 0.3% annual rate last time but the Bank of England has acknowledged that inflation is likely to turn negative at some point. We think that the data might be a bit firmer than the consensus. Such an outcome could support the pound although he suspects there might be a bit more reaction to a downside shock given that MPC member Haldane’s mention of a possible rate cut last week is fresh in the markets memory (and one reason for sterling’s recent slide).
If it’s a race to negative CPI inflation, the US has already won, as annual inflation stood at -0.1% last time and, for today’s data for February, the market sees a repeat, based on a m/m rise of 0.2%. The core rate, excluding food and energy, is seen rising a more modest 0.1%. The consensus for a 0.1% core rise is quite strong – as it usually is. Some 81% of the 84 surveyed in the Bloomberg poll anticipate a 0.1% rise and it would be a shock if it were anything else.
Before the CPI data-fest, we will see the Eurozone PMI flash estimates for March. The manufacturing survey is seen up to 51.5 from 51. The survey has improved recently, although was unchanged in February. If it fails to rise again the market (and the euro) could feel a bit let down but Steve’s view is that the data is most likely to be a bit above the consensus.
Local developments
On the local front, it is a quiet week apart from the MPC meeting which concludes on Thursday. As mentioned before, we expect the SARB to provide a hawkish statement. All else equal, this should be rand-positive from an interest rate differential perspective.
Stats SA releases the Quarterly Employment Statistics for Q4:14 today at 11:30. While there are no consensus forecasts available, it is likely that the q/q non-farm payrolls will rebound in the final quarter after contracting by 1.5% q/q in Q3:14. Surveying the past 10 years, the Q4 q/q number has improved in the final quarter in 7 of the past 10 years.
Markets
The rand strengthened further on Monday, with the local currency closing at 11.90, compared to Friday’s close of 12.02. The rand’s appreciation against the greenback occurred in line with dollar weakness against some of the major currencies; the dollar posted the largest loss against the euro (1.2%), and the yen (-0.3%), but strengthened marginally against the pound. The rand gained ground most of the major crosses; the yen (0.7%) and the pound (-1.0%), but traded weaker against the euro (0.3%). The rand put in the second-worst performance amongst the commodity currencies we monitor for purposes of this report, only ahead of the CAD and put in a mixed performance amongst EM currencies. The rand traded between a low of USDZAR11.8860 and a high of USDZAR12.1359 intraday.
Today’s auction will see NT offer R900m of R213, R750m of R2037 and 700m of R2048. Over the past five days, offshore investors have bought +R511m of R213, +R274m of R2037 and +R292m of R2048. We think R213s will be the pick of the auction.
Turnover yesterday was just R16.6bn of nominal SAGBs, R735m of ILBs. 48% of turnover was in the R186, with 29% of turnover in front-end stock and 23% in back-end bonds. Offshore investors were net sellers of a very marginal -R193m. Selling was in the R207 (-R413m), R158 (-R250m) and R2023 (-R121m). This was offset with buying in the R203 (+R438m), R186 (+R162m) andR2032 (+R117m).
Commodity prices were up on Monday. Copper was up by 1.2% while platinum and gold were up by 0.9% and 0.6% respectively. The price of Brent increased on Monday, by 1.1%, to close higher at $55.92/bbl. Both the developed world MSCI and the MSCI EM were up on Monday, by 0.2% and 0.6% respectively. The ALSI was up by 0.1% on the day. Non-residents were net buyers of equities (ZAR2 741 million) on the day. The EMBI spread narrowed by 5 bps and SA’s 5yr CDS narrowed by 7 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, increased by 3.0%.
Latest SA publications
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)
SA FX Weekly: Catching a falling knife by Marc Ground and Shireen Darmalingam (16 March 2015)
Credit & Securitisation Weekly: Eskom by Steffen Kriel and Varushka Singh (13 March 2015)
Credit & Securitisation Monthly: Update on Eskom by Steffen Kriel and Varushka Singh (6 March 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 holds positive ground above 1.0700, eyes on German CPI data
EUR/USD trades on a stronger note around 1.0710 during the early Monday. The weaker US Dollar below the 106.00 mark provides some support to the major pair. All eyes will be on the Federal Reserve monetary policy meeting on Wednesday, with no change in rate expected.
USD/JPY recovers 156.00 after testing 155.50 on likely Japanese intervention
USD/JPY has recovered some ground above 156.00 after crashing to 155.00 on what seemed like a Japanese FX intervention. The Yen tumbled in early trades amid news that Japan's PM lost 3 key seats in the by-election. Holiday-thinned trading exaggerates the USD/JPY price action.
Gold tests critical daily support line, will it defend?
Gold price is seeing a negative start to a new week on Monday, having booked a weekly loss. Gold price bears the brunt of resurgent US Dollar (USD) demand and a risk-on market mood amid Japanese holiday-thinned market conditions.
XRP plunges to $0.50, wipes out recent gains as Ripple community debates ETHgate impact
Ripple loses all gains from the past seven days, trading at $0.50 early on Monday. XRP holders have their eyes peeled for the Securities and Exchange Commission filing of opposition brief to Ripple’s motion to strike expert testimony.
Week ahead: FOMC and jobs data in sight
May kicks off with the Federal Open Market Committee meeting and will be one to watch, scheduled to make the airwaves on Wednesday. It’s pretty much a sealed deal for a no-change decision at this week’s meeting.