Market Wrap

Markets @ Bidvest Bank - 08 February 2016

By Bidvest Bank
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  • The first payrolls report for 2016 was a mixed affair, characteristic of US outcomes over recent months. Headline payrolls missed expectations of 190k sharply at 151k with downside revisions to the lofty priors, however the impact of this figure on policy has been severely diminished since several FOMC members have noted their comfort with payrolls growth of around 100k being appropriate to continue driving the unemployment rate lower. This was on full display in the report with headline unemployment down to new trend lows at 4.9%, ostensibly meaning the Fed has achieved its employment mandate. Of most prominence on the session was a sharp topside surprise and revisions to average hourly earnings, and while there were statistical and seasonal influences here, they do suggest that labour market tightening is finally transmitting to earnings.

  • In the wake of the data, the Atlanta Fed revised its Q1 GDP tracking estimate sharply higher to 2.2% from 1.2% given that higher earnings are assumed to boost consumer spending growth significantly in future. Note however that even with the windfall from lower gas prices the US consumer has been much tighter-fisted than prior cycles with a higher propensity to save so this assumption should be viewed critically.








  • Data from VISA this morning makes for some interesting reading in that it suggests that consumer spending rose by a seasonally adjusted 2.7% y/y which is the fastest growth achieved since May 2015. Perspective is however required.  The December reading was softer than anticipated and the January figure may be a reversal of the mild weather effects that hampered sales in December.  Nonetheless, it is clear that the ultra-low interest rates are still assisting in boosting overall levels of consumption expenditure which will likely please the BoE authorities.









  • An economic advisor to Japanese PM Abe affirmed the official discomfort with the latest JPY appreciation, saying it along with weaker inflation expectations may prompt more QE and lower negative rates. The USD-JPY weakened to 121.68 in the wake of the BoJ rate cut two weeks ago, but has strengthened to around 117.50 since then.

  • In terms of o/n data, Japan posted an 18th consecutive current account surplus driven by cheap energy imports.

  • In terms of Chinese data, January FX reserve figures showed a $99.5bn decline, lower than median expectations for $125-150. While still a sign of significant capital outflows, the data may help to temper immediate concerns over the PBOC’s ability to maintain CNY stability. Golden Week holidays will keep local markets shuttered.




  • Not much in the way of data to look forward to in this trading session other than the Sentix Investor Confidence release.  In contrast to some of the more bullish expectations for the economy, the confidence gauge has topped out and is showing signs of sliding lower.

  • It is interesting to note the calls made by German and French central banks that have argued for closer integration within the eurozone through the introduction of a central eurozone finance ministry.  Fiscal integration would be considered a major step forward in coordinating the fiscal position of all the economies in the EZ.



    Developments worth noting:


  • This week will feature arguably one the most important events ahead of the Finance Minister’s budget announcement on the 24th of February. Thursday’s State of the Nation address (SONA) by President Zuma will be keenly looked at in terms of broader policy direction, and the fact that police officers from three units will be deployed to Parliament to beef up security speaks volumes in terms of sentiment from the public towards the state and from the state towards its citizens.

  • A new index released at the start of the month by North-West University aims to measure policy uncertainty by combining a survey of 25 economists, an analysis of news reports in 20 leading publications and the political/policy component of the Bureau for Economic Research's purchasing managers' index. A quarterly ratings score is assigned on a scale from 0 to 100, where a score above 50 signals heightened uncertainty. The third quarter of 2015 has been chosen as a baseline, with an allocated a score of 50, and unsurprisingly the first score of the uncertainty index jumped to 55.4 in the fourth quarter, reflecting a sharp increase in political uncertainty.

  • That the “Uncertainty Index” is a qualitative measure should not be scoffed at, as it provides a fairly broad measurement of perceived policy certainty or a lack thereof by investors and is perhaps a nifty way to summarise on a quarterly basis, those policy events or decisions which have resulted in an improvement or deterioration of SA’s policies. For Q4, Nenegate, negative credit ratings actions, the signing into law of the new protection and promulgation of investment act, are all factors cited as having had a negative effect on SA’s policy direction.

Data/Events for the week:

  • Locally, the week ahead features mining and manufacturing data for December, to provide insight into the state of the productive sectors. While the downward trend in mining output since the growth peaks achieved in March 2015 looks to be turning higher, we would caution against turning too optimistic on the mining sector just yet. A global surplus across a broad range of commodities persists, which consequently means prices will likely stay subdued for longer, keeping firm’s profit margins and the feasibility of certain projects under strain. The aggregate demand environment meanwhile remains weak while rising input costs, strained labour relations and regulatory restraints all point to tough times ahead. 

  • Globally, it is a much lighter card this week with only Friday’s retail sales key in terms of US data. Signalling from Fed Chair Yellen on Wednesday ahead of the March FOMC will prove crucial for assessing Fed rate hike risks. In the euro-area, focus will fall on the advanced Q4 GDP estimate for 2015 on Friday, with expectations for growth to remain unchanged at a moderate 0.3% q/q, while to lose some steam on a y/y basis. The European Commission last week indicated that growth in the bloc will accelerate slightly this year and next, albeit less than previously forecast, amid increased global growth risks. 

Trade Weighted ZAR:

  • The trade-weighted rand weakened 2.0% in the week-ended February 5, with losses most pronounced against the JPY at over 4%. The rand also depreciated by 3.7% and 2.6% respectively against the EUR and GBP, as the bulk of the majors benefitted from a repricing of Fed rate expectations. In this regard, the ZAR weakened by a comparatively less severe 0.9% against the greenback.

  • The developments noted last week underscore how the local unit is still both fragile and vulnerable to economic difficulties that lie ahead both abroad and domestically. 

  • The week ahead will likely be a tumultuous one for the ZAR with the President back in the spotlight. Not only does he deliver the State of the Nation address (SONA) on Thursday in which the likes of the EFF and the DA will no doubt challenge him on the firing of former Finance Minister Nene, but ahead of that he will also have to contend with the constitutional court case to determine the influence of the Public Protector and the implications for him personally in dealing with the overspending at Nkandla.

  • At best, the SONA might just touch on the right things and tee up the Finance Minister to deliver a tough budget where decisions will be taken to try and reform SA’s economy into a more sustainable position. At worst, an appearance of a lack of accountability or grasp for the seriousness of SA’s financial position will only highlight the reasons why foreigners are treating SA as an emerging market in trouble.

Bidvest Bank Limited, 19 Ameshoff Street, Braamfontein, Johannesburg, 2001 (“Bidvest Bank”). The information furnished in this report (“this report”), which information may include opinions, estimates, indicative rates, terms, price quotations, and projections, reflects the current view of the author(s) and prevailing market conditions, which view and conditions are subject to change without notice. The information herein has been obtained from various sources, the accuracy and completeness of which Bidvest Bank does not guarantee. This report does not constitute advice or any recommendation, and independent tax, accounting, legal and financial advice should be sought, should any party seek to place any reliance on the information contained herein. This report has been prepared for general information purposes only and may not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell, any financial instruments or to participate in any particular trading strategy in any jurisdiction. Any additional information relative to any financial instruments and financial products reviewed in this report is available upon request. All rights are reserved. Any unauthorised use or disclosure of this report is prohibited