Standard Bank Research Team
Standard Bank
The rand is back above 12.00 against the dollar. Other EM currencies such as the TRY and BRL have also been under pressure since Thursday last week as the dollar has strengthened.
Key local data this week would be the trade balance for February. In January the deficit was -R24.2bn. This was much larger than market expectations, but broadly in line with our expectations.
Seasonally, February’s trade balance tends to be much better than the trade balance of January. We expect a small surplus for February. Good data here may add some strength to the rand.
The week may be quiet ahead of Friday’s US non-farm payroll data. Market consensus is for a print of 248K. A better-than-expected number could weigh on the rand.
We look at the March manufacturing PMI data due for release on Wednesday.
Key manufacturing prints will be China and the US. Consensus expects China’s PMI to remain below 50, and for the US PMI to remain unchanged from February at a healthy 55.3.
International developments
It’s a quiet start today, compared to a relatively busy week on the international data front – most notably, we have manufacturing and non-manufacturing PMIs from across the globe and US non-farm payrolls out later this week. For today, German regional CPI readings kick things off this morning. These will be watched for indications of the overall German CPI to be released this afternoon. The preliminary reading CPI for March is seen up at 0.3% y/y, compared to 0.1% y/y. The harmonized measure (this is what feeds into Eurozone calculations) is seen pulling out of deflationary territory (-0.1% y/y) to post a 0.1% y/y increase.
Eurozone economic sentiment data will also be released. The reading on economic confidence is expected to rise to 103.0 in March, up only slightly from 102.1 in February. The expected increase is most likely due to the start of the ECB’s QE program in March, as well as the related euro weakness. However, a rise in concerns over Greece may have put somewhat of a dampener on confidence.
US personal income and spending data for February will be published today. Given the unseasonably bad weather we saw in that month, gains in these readings are expected to be fairly muted. Personal income is seen rising 0.3% m/m, in line with January’s 0.3% m/m gain. Personal spending is expected to rise 0.2% m/m, an improvement on the -0.2% m/m decline seen in January. Also of interest might be the February reading on PCE inflation. PCE inflation is the Fed’s preferred measure of consumer inflation from a policy calibration point of view. The headline figure is expected to rise to 0.3% y/y in February, from 0.2% y/y. Core PCE inflation is expected to hold steady at 1.3% y/y.
Local developments
SARS releases the February trade balance data tomorrow at 14:00. Bloomberg consensus expectations has pencilled in a narrowing of the trade deficit to -ZAR6.0 billion in February from a massive -ZAR24.2 billion in January. Our economist, Kim Silberman, estimates a trade surplus of ZAR1.2 billion in February 2015 versus a surplus of ZAR647 million in February 2014. Kim notes that seasonally imports almost always contract in February versus January’s levels. In addition, she expects Y/Y growth in the value of imports in February will slow due to the 43% y/y fall in the rand price of oil. Imports grew 10.9%y/y in February 2014 and may grow between 3% and 4%y/y in February 2015. The global dollar price of South Africa’s top four commodity exports fell dramatically (again) in February; Iron fell 48% y/y, gold -0.9% y/y, platinum -13% y/y and coal -23% y/y. This will dampen any volume recovery in exports.
The March Kagiso PMI data will be released on Wednesday at 11:00. Bloomberg consensus poll estimates that PMI will improve only marginally to 48.0 pts in March from 47.6 pts in February. NAAMSA releases the vehicle sales data on the same day. Vehicle sales growth is expected to have moderated to 0.7% y/y in March from 1.1% y/y in February.
Markets
The rand weakened on Friday, with the local currency closing at 12.04, compared to Thursday’s close of 12.00. The rand’s depreciation against the greenback occurred in line with dollar weakness against all of the major currencies; the dollar posted the largest loss against the pound (0.2%), but weakened only marginally against the euro and the yen. The rand also lost ground against all of the major crosses; the pound (0.6%), the euro (0.4%) and the yen (-0.4%). The rand put in the best performance amongst the commodity currencies we monitor for purposes of this report, and put in a mixed performance amongst the EM currencies. The rand traded between a low of USDZAR11.9579 and a high of USDZAR12.0542 intraday.
Metal prices were lower on Friday. Copper and platinum were down by 1.9% and 1.4% respectively while gold was down by 0.5% on the day. The price of Brent decreased on Friday, by 4.7%, to close lower at $56.41/bbl. The developed world MSCI was down negligibly on Friday while the MSCI EM was down on the day, by 0.5%. The ALSI was up by 0.4% on the day. Non-residents were net buyers of equities (ZAR934 million) on Friday. The EMBI spread widened by 9 bps and SA’s 5yr CDS narrowed by 1 bp. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 4.6%.
Latest SA publications
SA Macroeconomics: Economics Note: Weaker growth, higher inflation, unchanged repo rate: Hawkish tone, but SARB's outlook still does not justify a hike by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (27 March 2015)
SA Fixed Income MPC Comment: Defending not to hike by Asher Lipson and Walter de Wet (26 March 2015)
SA FI ALBI note: Auctions pressure the ALBI by Asher Lipson (25 March 2015)
SA FX Weekly: USDZAR trading now in a weaker range by Marc Ground and Shireen Darmalingam (24 March 2015)
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)
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