ZAR continues to test key resistance levels

• EM currencies remain under pressure, and the rand is no exception. It saw more selling pressure yesterday but managed to close below 13.50. It ranged between a low of USDZAR13.3891 and a high of USDZAR13.5127.

• Yesterday’s US ADP employment data came in at 190K for August, below consensus of 200K. The July print was revised lower, to 177K from 185K.

• The IMF has once again warned leading central banks not to hike rates ahead of the G20 finance ministers meeting this weekend. The IMF is worried that the performance of most economies in the second half of this year has not been in line with expectations and it is not yet time to begin monetary tightening.

• The Iran Nuclear Deal is looking more and more likely to go through as Obama has secured enough votes in the senate to deny the opposition the two-thirds majority they’d need to override a presidential veto.

• The ECB will meet today to decide on their monetary policy. Very little is expected to change with regard to monetary stance in the Eurozone.

• Ratings agency Moody’s comments yesterday were encouraging amidst the rand testing key resistance levels. The ratings agency reaffirmed South Africa’s sovereign ratings at Baa2 and maintained a stable outlook.

• The only local data due today is the Standard Bank PMI for August at 09h15. The index is expected to have increased in August, after having slipped fractionally in July.

International developments

EM currencies remain under pressure, and the rand is no exception. The rand saw more selling pressure yesterday but managed to close below the 13.50 level.

Yesterday’s US ADP employment data came in at 190K for August, below consensus of 200K. The July print was revised lower to 177K, from 185K. This print, which comes ahead of tomorrow’s official non-farm payrolls data, saw USTs come under marginal pressure. The US 10-year bond yield remains just below the 2.20% level.

The IMF has once again warned leading central banks not to hike rates ahead of the G20 finance ministers meeting this weekend. The IMF is worried that the performance of most economies in the second half of this year has not been in line with expectations and it is not yet time to begin monetary tightening.

In Asia, the Chinese and Hong Kong markets closed for national holidays today and tomorrow. Japan’s services purchasing managers index for August came in at 53.7, up from 51.2 for July, marking its highest level since October 2013. At time of writing, the Japanese Nikkei was up 0.7% on the back of this data.

However, with Chinese markets closed for the rest of the week, markets are likely to be range-bound ahead of the US jobs print tomorrow. This data will be the last print before the next FOMC meeting on 17 September.

The positive performance of most equity markets yesterday has seen industrial commodities gain favour over precious metals although most commodity prices remain within their recent trading ranges. Brent crude oil is at $50/bbl.

The Iran Nuclear Deal is looking more and more likely to go through as Obama has secured enough votes in the senate to deny the opposition the two-thirds majority they’d need to override a presidential veto. With the deal in place, Iran would likely enter the oil market, which would push the price of oil down further.

The ECB will meet today to decide on their monetary policy. Very little is expected to change with regard to the monetary stance in the Eurozone although the rhetoric is likely to be focused on recent market volatility and how the ECB is likely to manage this.

Local developments

Ratings agency Moody’s comments yesterday were encouraging amidst the rand testing key resistance levels. The ratings agency reaffirmed South Africa’s sovereign ratings at Baa2 and maintained a stable outlook yesterday. Their decision was based on fiscal consolidation which they believe would be maintained together with sound macroeconomic policies and strong institutions. Significantly, the ratings agency noted that SA is likely to avoid a recession this year and has pinned their GDP forecast at 1.7% in 2015 and increasing to 1.9% in 2016. Furthermore, they noted that GDP growth was unlikely to clip 3% before 2017 or 2018, with electricity supply shortages, low commodity prices and severe drought conditions likely to keep GDP growth constrained over the forecast period.

The only local data due today is the Standard Bank PMI for August at 09h15. The index is expected to have increased in August, after having slipped fractionally in July.

Markets

The rand closed at 13.44 on Wednesday, compared to Tuesday’s close of 13.45. The rand’s appreciation against the greenback, albeit only marginally, occurred despite dollar strength against all of the major currencies; the dollar posted gains against the yen (0.8%), the euro (-0.8%) and marginally against the pound. The rand strengthened against all of the major crosses; the rand gained ground against the yen (0.8%) and the euro (-0.8%), but gained only fractionally against the pound on the day. 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 the third-best performance amongst the EM currencies, ahead of the MXN and INR. The rand traded between a low of USDZAR13.3891 and a high of USDZAR13.5127.

Commodity prices were mixed on Wednesday. Platinum and copper were up on Wednesday, by 1.2% and 1.0% respectively, while gold was down 0.5% on the day. Brent closed the day 1.9% higher, at $50.50/bbl. The developed world MSCI was up by 0.9% on Wednesday while the MSCI EM was down by 0.6% on the day. The ALSI was up by 1.5% on the day. Non-residents were net sellers (ZAR311 million) of equities on the day. The EMBI spread narrowed on Wednesday, and SA’s 5yr CDS widened by 2 bps. The CBOE VIX Index, a volatility-based proxy for global risk appetite/aversion, decreased by 16.9%.

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