• The Eurozone has approved the EUR86bn rescue package for Greece, although the IMF has yet to confirm their involvement in the deal. The IMF holds the view that Greece’s debt is unsustainable, and some of the more hawkish members of the Eurozone are demanding the involvement of the IMF in the bailout deal.

  • The People’s Bank of China has set the reference rate for the RMB 0.1% stronger than it was on Friday. This morning the Shanghai Composite was up 0.14%, and the Japanese Nikkei was up 0.24%, while the Hong Kong Hang Seng was down 0.91%.

  • The devaluation of the RMB last week saw the global bonds market rally, with prices rising and yields falling during the middle of the week.

  • When the dust settles around the RMB move last week, a small devaluation as we have seen may have little overall impact on local markets. However, we believe that the large devaluation of the RMB may be rand-negative and, at the margin, SAGB-positive.

  • The rand weakened further on Friday, closing at 12.83, compared to Thursday’s close of 12.81. The rand traded between a low of USDZAR12.7641 and a high of USDZAR12.8874.

  • Stats SA releases the July CPI data at 10h00 on Wednesday. Bloomberg consensus expectations pencil in a pick-up in inflation to 5.0% y/y in July from 4.7% y/y in June. Standard Bank expects CPI to have increased by 4.9% y/y. Retail sales, also due for release on Wednesday, is expected to have increased by 3.3% y/y in June from 2.4% y/y in May.


International developments

The Eurozone has approved the EUR86bn rescue package for Greece, although the IMF has yet to confirm their involvement in the deal. The IMF holds the view that Greece’s debt is unsustainable and some of the more hawkish members of the Eurozone are demanding the involvement of the IMF in the bailout deal. A decision in favour of a reasonable Greek bailout would be rand-positive.

The People’s Bank of China has set the reference rate for the RMB 0.1% stronger than it was on Friday. This morning the Shanghai Composite was up 0.14%, and the Japanese Nikkei was up 0.24%, while the Hong Kong Hang Seng was down 0.91%.

The devaluation of the RMB last week saw the global bonds market rally, with prices rising and yields falling during the middle of the week. The uncertainty surrounding the renminbi has also added to the sentiment that the Fed is more likely to hike rates in December rather than September this year.

When the dust settles around the RMB move last week, a small devaluation as we have seen may have little overall impact on local markets. However, we believe that the large devaluation of the RMB may be rand-negative and, at the margin, SAGB-positive. This negative impact will be felt via imports, exports and, potentially, slower growth.

Furthermore, on balance further RMB devaluation may benefit the long-end of the curve relative to the short-end. That said, for us the impact on rates is more ambiguous than the impact on the currency. The positive support for longer-dated rates could be clouded by substantial rand weakness. Overall our view on SAGBs remains unchanged; we expect bonds to remain under pressure into year-end. We still hold a target of 8.4% for the R186 at year-end. We expect the SARB to remain on hold for the remainder of this year.

Possibly the highlight of the week on the international front will be on Wednesday when we see the release of the Fed minutes of their July FOMC meeting which should also provide more information on their thinking with regard to when they are likely to hike rates. A hawkish stance from the Fed may put further pressure on the rand.


Local developments

Stats SA will release the July CPI data at 10h00 on Wednesday. Bloomberg consensus expectations pencil in a pick-up in inflation to 5.0% y/y in July from 4.7% y/y in June. Standard Bank expects CPI to have increased by 4.9% y/y. We anticipate, however, that the additional surveys (bus fares, gym fees, building insurance and funeral policies) will create volatility and upside risk to the July print. Petrol, after having increased by 41c/l in July, is expected to have added 0.07 percentage points more than in June. Furthermore, we expect food inflation to have bottomed in July.

Stats SA also releases the retail sales data on Wednesday at 13h00. The June data is expected to provide more information on the state of the consumer whose spending has been constrained in the first half of this year. Bloomberg consensus expectations pencil in an increase in retail sales growth to 3.3% y/y in June from 2.4% y/y in May. On a m/m basis, retail sales growth is expected to have increased to 0.2% in June from 0.1% in May.


Markets

The rand weakened further on Friday, closing at 12.83, compared to Thursday’s close of 12.81. The rand’s depreciation against the greenback occurred in line with dollar weakness against some of the major currencies; the dollar posted losses against the pound (0.2%) and the yen (-0.1%), but gained against the euro (-0.4%). The rand weakened against some of the major crosses; the rand lost ground against the pound (0.3%) and the yen (-0.2%), but gained ground against the euro (0.3%). The rand put in a mixed performance amongst the commodity currencies we monitor for purposes of this report, and put in the fourth-best performance amongst the EM currencies, only behind the BRL, INR and MXN. The rand traded between a low of USDZAR12.7641 and a high of USDZAR12.8874.

Commodity prices were mixed on Friday. Copper was down by 0.4% on Friday, while gold was only down marginally on the day. Platinum gained 0.1% on the day. Brent closed the day 0.4% lower, at $49.03/bbl. The developed world MSCI was up by 0.1% on Friday, while the MSCI EM was down by 0.1% on the day. The ALSI was down by 1.1% on the day. Non-residents were net sellers (ZAR196 million) of equities. The EMBI spread widened by 1 bp, and SA’s 5yr CDS widened by 2 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 4.9%.


Latest SA publications

SA FIC Weekly: When China devalues by Walter de Wet, Shireen Darmalingam and Penny Driver (17 August 2015)

SA Macroeconomics: We revise our commodity price and currency outlook: Risks to commodity prices lie to the downside & we adjust our ZAR forecast weaker by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (13 August 2015)

SA FX Weekly: Rand weaker as cyclical drivers and EM support wane by Walter de Wet, Shireen Darmalingam and Penny Driver (12 August 2015)

SA Macroeconomics: June manufacturing -0.4% y/y: Q2 contracts -4.9% q/q saar, sending the sector into recession EM peers by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (11 August 2015)

SA Macroeconomics: Mining and manufacturing to show positive growth in June: SA assets outperform EM peers by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (11 August 2015)

SA Macroeconomics: EM inflows total $6.7Bn in July, $102Bn YTD, -40% y/y YTD: SA outperforms, up 36% y/y YTD by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (11 August 2015)

SA Macroeconomics: SA recorded $290Mn net outflows from equity and debt: US labour and global PMI data to dominate asset prices by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (3 August 2015)

SA FIC Weekly: Fool me once – despite oil price decline, bonds and rand on back foot as Brazil goes negative by Walter de Wet, Shireen Darmalingam and Penny Driver (3 August 2015)

SA Macroeconomics: SA records its first quarterly trade surplus in 3 years: Base effects, & weak demand counter declining terms of trade by Kim Silberman, Thanda Sithole and Kuvasha Naidoo (31 July 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


Recommended Content

Editors’ Picks

EUR/USD retreats toward 1.0850 on modest USD recovery

EUR/USD retreats toward 1.0850 on modest USD recovery

EUR/USD stays under modest bearish pressure and trades in negative territory at around 1.0850 after closing modestly lower on Thursday. In the absence of macroeconomic data releases, investors will continue to pay close attention to comments from Federal Reserve officials.

EUR/USD News

GBP/USD holds above 1.2650 following earlier decline

GBP/USD holds above 1.2650 following earlier decline

GBP/USD edges higher after falling to a daily low below 1.2650 in the European session on Friday. The US Dollar holds its ground following the selloff seen after April inflation data and makes it difficult for the pair to extend its rebound. Fed policymakers are scheduled to speak later in the day.

GBP/USD News

Gold climbs to multi-week highs above $2,400

Gold climbs to multi-week highs above $2,400

Gold gathered bullish momentum and touched its highest level in nearly a month above $2,400. Although the benchmark 10-year US yield holds steady at around 4.4%, the cautious market stance supports XAU/USD heading into the weekend.

Gold News

Chainlink social dominance hits six-month peak as LINK extends gains

Chainlink social dominance hits six-month peak as LINK extends gains

Chainlink (LINK) social dominance increased sharply on Friday, exceeding levels seen in the past six months, along with the token’s price rally that started on Wednesday. 

Read more

Week ahead: Flash PMIs, UK and Japan CPIs in focus – RBNZ to hold rates

Week ahead: Flash PMIs, UK and Japan CPIs in focus – RBNZ to hold rates

After cool US CPI, attention shifts to UK and Japanese inflation. Flash PMIs will be watched too amid signs of a rebound in Europe. Fed to stay in the spotlight as plethora of speakers, minutes on tap.

Read more

Majors

Cryptocurrencies

Signatures