US FOMC minutes and domestic CPI data to drive sentiment today

• Markets are still firmly focusing on China and EM markets, as well as commodities which remain under pressure.

• This morning Asian equity markets took another hit following the devaluation of the RMB last week. The Shanghai Composite lost 6.15% yesterday and has already lost a further 3.22% at the time of writing this morning.

• Chinese auto sales numbers for July were released this morning. Passenger vehicles came in at 1.268 million units, down from 1.511 million units in June. That said, seasonally July is always a slow month, and the m/m decline is expected.

• In Europe the German parliament meets today to vote on the Greek bailout package. Although the deal is certain to get through the Bundestag, the opposition has increased since last month.

• On the international front, we await the FOMC minutes from the last meeting. We will also look at US CPI and real average weekly earnings – all important monetary variables.

• The rand was unchanged on Tuesday, closing at 12.91, the same as on Monday. The rand traded between a low of USDZAR12.8815 and a high of USDZAR12.9709.

• Stats SA will release the July CPI data today at 10h00. 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. Stats SA will also release the retail sales data today 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.

International developments

Markets are still firmly focusing on China and EM markets, as well as commodities which remain under pressure.

This morning Asian equity markets took another hit following the devaluation of the RMB last week. The Shanghai Composite lost 6.15% yesterday and has already lost a further 3.22% at the time of writing this morning. The Shenzhen Composite was down 6.58% yesterday and a further 2.79% at time of writing, while the Japanese Nikkei dropped 0.32% yesterday and a further 1.38% this morning. The Hong Kong Hang Seng moved down 1.43% yesterday and lost a further 0.94% at time of writing. With Chinese equities lower by almost 9% in two days, markets will question the possibility of further devaluation of the RMB in coming weeks. This may put further pressure on EM currencies and the rand.

Chinese auto sales numbers for July were released this morning. Passenger vehicles came in at 1.268 million units, down from 1.511 million units in June. That said, seasonally July is always a slow month, and the m/m decline is expected. What is perhaps more concerning is that auto sales are down on a y/y basis, too, dropping -6.5% y/y. June also saw a y/y decline of auto sales. We have a particular interest in auto sales because they tend to be a leading indicator of economic activity. Copper is now trading just above $5,000 — a 6-year low. This would be consistent with industrial growth in especially China which continues to struggle.

In Europe, the German parliament meets today to vote on the Greek bailout package. Although the deal is certain to get through the Bundestag, the opposition has increased since last month. The Dutch are facing a vote of no confidence over their support of the Greek bailout deal, and the IMF is still firm on not participating unless the country’s debt is made sustainable. It’s not quite a done deal yet.

On the international front, we await the FOMC minutes from the last meeting. We will also look at US CPI and real average weekly earnings – all important monetary variables.

Local developments

Stats SA will release the July CPI data today at 10h00. Bloomberg consensus expectations pencil in a pick-up in inflation to 5.0% y/y in July from 4.7% y/y in June. Our economics team 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 June. Core inflation is expected to have remained unchanged at 5.5% y/y in July.

Stats SA will also release the retail sales data today 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 remained unchanged on Tuesday, closing at 12.91, the same as on Monday. The rand’s performance against the greenback occurred in line with dollar strength against some of the major currencies; the dollar posted gains against the euro (-0.5%) and gained marginally against the yen, but lost ground against the pound (0.5%). The rand strengthened against some of the major crosses; the rand gained ground against the euro (-0.6%) and the yen (0.1%), but lost ground against the pound (0.5%). The rand put in a mixed performance amongst both the commodity currencies we monitor for purposes of this report and EM currencies. The rand traded between a low of USDZAR12.8815 and a high of USDZAR12.9709.

Commodity prices were mixed on Tuesday. Copper and platinum were down on Tuesday, by 1.6% and 0.4% respectively, while gold was up marginally on the day. Brent closed the day 0.1% higher, at $48.81/bbl. Both the developed world MSCI and MSCI EM were down on Tuesday, by 0.3% and 0.8% respectively. The ALSI was up by 0.4% on the day. Non-residents were net buyers (ZAR340 million) of equities. The EMBI spread narrowed fractionally, and SA’s 5yr CDS widened by 2 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, increased by 5.9%.

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