Market Wrap

Markets @ Bidvest Bank - 15 February 2016

By Bidvest Bank
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  • The main data release for last week in the form of retail sales was broadly strong with solid beats to headline and core readings. In fact the strong performance on the GDP-inputted control group figure prompted the Atlanta Fed to revise its Q1 GDP tracking estimate up to 2.7% from 2.5%, now well-above Street consensus. As a reminder, this estimate started out the month nearer to 1.0% to show just how much more bullish incoming data have been in contrast to the recession fears doing the rounds after what is shaping up to have been just another anomalously soft quarter in Q4.

  • Against the backdrop of resilience in the labour and consumptive sectors, however, the Fed contends with continuously depressed inflation expectations both in terms of markets and the household sector. The 5-10 year inflation expectations component of the Michigan consumer confidence survey dipped to its lowest on record at 2.4%.

  • Stateside equity and bond markets are closed today for a public holiday.








  • Rightmove house price data released earlier revealed a 7.3% y/y increase in February compared with 6.5% y/y in January, and marginally below the recent peak of 7.4% y/y recorded in December. Rightmove attributed the spike to a sharp increase in demand while supply was fairly stable.

  • The January inflation print is expected to pick up from the 0.2% registered in December, but as always core and services inflation will both be worth watching. The latter is perhaps the “purist” guide to domestic inflationary pressure in the headline CPI data, given the labour-intensive nature of the industry.

  • The UK’s labour market statistics for December will also be watched with interest, with wages and unemployment data in sharp focus at the BoE as usual.









  • Post-holiday reaction from authorities to the USD-JPY collapse has remained one of talk so far, but the move is clearly unnerving. PM Abe advisor’s Honda noted that the BoJ may call an emergency policy meeting to undertake additional measures, while the BoJ’s Deputy Gov. called on govt. to come to the table with more.

  • Chinese markets have plenty of catching up post their week-long holiday. PBOC Gov. Zhou broke official silence into the market re-opening, affirming Bank’s desire for stability in FX market and talking down devaluation and capital control speculation. Despite the big miss on trade data, markets remain fairly calm for now.




  • German Fin Min Schaeuble is expected to call for a change to monetary policy when the G20 meets at the end of February. Germany has long felt that the powers of monetary policy have been exhausted and that the way to generate a more stable growth friendly environment will be through the reforms in fiscal policy and the overall reduction of sovereign debt. Germany is leading the way by example.

  • Portugal is slowly coming around to the idea that fiscal profligacy will not be tolerated by the markets and although the government may have gotten voted in by promising an end to austerity, the reality is that they will not be able to follow through with what had been promised. The govt. is currently working on fiscal measures to help shore up tax revenues and meet EU guidelines, even though they feel they will not be used.


    Developments worth noting:


  • The new week will likely start with a degree of volatility and uncertainty on account of China returning from several days of public holidays but the US enjoying a long weekend as they celebrate President’s Day to keep liquidity conditions a little constrained.  Given the data that has already been released this morning and which has not detracted from sentiment on Asian equity markets, it would appear that on balance, it will be a reasonable start to the trading week with the Nikkei surging on growing expectations that the BoJ will be asked to stimulate the economy more aggressively following some disappointing GDP data.

  • With regards to domestic news, the front page of the Business Day this morning reveals the report commissioned by the President back in 2012 to look into partial privatisation of state-owned enterprises. It feels like more than pure coincidence that this report is released now when the Presidency has been sitting on it for the past two years just as the government is engaging the private sector.  As the fiscal purse strings tighten up, there may well be something in this story which for the ZAR, bonds and SA’s credit rating could only be seen as good news.

  • Focus in terms of the local data card will fall squarely on January CPI and retail sales.  While major global central banks are currently battling low levels of inflation or in some cases deflation, South Africa’s CPI ramped higher to 5.2% y/y in December, marking the strongest inflation print in a year and affirming a renewed uptrend off August lows. While still relatively contained Brent crude prices in ZAR terms has the potential to keep fuel price inflation relatively contained beyond the first quarter, food price risks, potentially higher administered tariffs and the lingering impact of aggressive rand weakness suggest that SA’s inflation profile this year will be much higher than it was in 2015. Taken together, dynamics suggest scope for a breach of the upper 6.0% bound of the SARB target band in H1 2016.

  • The retail sector meanwhile has maintained resilience in the face of adversity in other parts of the economy. Factors such as a still bloated public sector wage bill, and the comparatively low inflation environment, are likely offering some support. However, govt.’s ability to grow its employee base as it had in the past is greatly challenged in the present growth/fiscal landscape, whilst inflation risks are overwhelmingly skewed to the topside. Higher SARB interest rates are also seen as dampening demand for credit-sensitive goods, and altogether, the outlook on retail remains precarious heading into 2016.

Data/Events for the week:

  • Locally, CPI and retail sales will hold focus this week.  Externally, focus in the UK will be placed on the latest CPI and employment prints with weakness here likely to affirm a dovish BoE rate outlook. In the Euro-area, ZEW sentiment data will be released tomorrow and could likely reflect a dent in sentiment owing to the latest market conflagrations, whilst participants will also be eying ECB minutes on Thursday. FOMC minutes also hold focus this week, as will the latest US manufacturing production data, with CPI figures capping the week off on Friday.

Trade Weighted ZAR:

  • The rand’s performance on a trade-weighted basis was relatively muted in the week-ended February 12, yet the rand nevertheless managed to appreciate 0.4%. Specifically, a 0.9% advance against both the CNY and USD on the week sufficed to offset a 2.3% depreciation in the JPY, whilst the rand was little changed against the EUR.

  • The strong outperformance in the JPY came on the back of heightened risk aversion for the week as a whole, which saw investors rotate into the safety of the yen and the Japanese currency strengthening vs. the greenback to levels seen in October 2014.

  • This morning, the stars have aligned for a stronger start to the week for the ZAR with the USD speculative positions being reduced, the US rate outlook being dialled back, Asian stocks on the front foot and some key technical support being broken on the USD-ZAR.

  • Anticipating a further recovery in the ZAR this morning may well be on the cards, especially as investors will not fear the US trading session moving the market against them. Technically, a test of levels as low as 15.6000 now appear to be on the cards and selling the upticks is favoured in the very short term.

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