Market Wrap

Markets @ Bidvest Bank - 29 February 2016

By Bidvest Bank
Downloads daily report
Downloads market wrap



  • The US data card ended last week on an even stronger basis in terms of consumptive and inflation gauges. Personal income was up sharply as presaged by the strong payrolls figures of late, but of more note was personal consumption growing at the fastest rate in 8 months. With the industrial and trade sectors still grappling with offshore and energy-related headwinds, consumption remains the key buttress to growth and as such Q1 GDP tracking estimates looking for an improvement to 2-3% from Q4’s revised 1.0% are still looking credible.

  • For the Fed, these wage and better consumption pressures affirm their expectation that inflation risks remain to the topside going forward. The preferred core PCE figure has finally started playing ball on this front, rising to 1.7% annually which is the highest since late 2012.

  • It will be another very busy week on the data card with key releases including the ISM PMIs and the Feb employment stats to contend with nearer the end. Today’s roster features lower-tier releases including the Chicago PMI and pending home sales figures.








  • The local card begins the week with a look at the cyclical underpinnings to the current economic environment courtesy of money and credit figures. Consumer credit has stabilized over recent quarters, but a lack of further topside momentum suggests risks to extent consumption can help support growth in future. Off concern to the BoE’s Financial Policy Committee will be a continuation of the sharp annual growth in unsecured lending.

  • The structural selling bias remains entrenched on Cable, reinforced by the latest bout of USD strength. Cable’s proxy status is now long gone given policy divergence and Brexit risks.









  • A busy start to the local card at the top of the week with the first look at hard industrial and consumption figures of note. Industrial production rose in January from the month before, beating forecasts, while retail sales fell, suggesting the recovery is still away off. Industrial production was down 3.8% from January 2015, and is forecast to fall by 5.2% m/m in February, partly due to weak demand as the world economy slows.

  • No fireworks from the G20 meeting over the weekend, with the press release from the PBOC merely reaffirming what has already been made clear: authorities see no basis for continued yuan depreciation and stabilizing the market is the crucial goal. Negative speculators are on notice.




  • Europe’s biggest migrant crisis is starting to take its toll.  When even the likes of Germany are struggling to absorb the amount of migrants and when it is causing significant strain, a clearer strategy will need to be adopted that helps Europe deal with the crisis in a holistic and humane manner.  The Merkel administration is however finding the fallout of the migrant crisis, difficult to deal with at present, whilst Greece, which is at the forefront of the crisis is also bearing a significant cost.

  • Interesting to note the comments by the head of France’s central bank that indicated that the ECB could extend the quantum of QE at the next meeting as the effects of oil prices and weak growth impact negatively on price pressures.



    Developments worth noting:


  • As the saying goes, once bitten twice shy. Having already experienced once before the carnage that followed the removal of the finance minister, the markets are now obviously fearful of another round of the same. The apparent rift between SARS Commissioner Moyane and Fin Min Gordhan has come to a head and this week we will learn whether the executive backed Gordhan or not. The expectation is that they will, armed with the hindsight of what happened in Dec and the desire to avoid a repeat performance, but in the political minefield that exists it is very difficult to rule out any other possibility.  What the markets have also not appreciated is the realisation of just how orchestrated the current administration is and just how pervasive the political influence stretches. It does little to boost confidence in the executive when events like this unfold.

  • That said, we tend to look at political developments like this as more “noise” than fundamental justification for a particular move and more often than not, such political developments tend to blow over quite quickly. The same could very well apply this time around, albeit that the stakes are higher. The reality is that political developments such as this do not influence economic behaviour in the way that interest rates do. The influence on factors such as the trade and the current account are minimal and the real economy will barely be disrupted other than through the unwelcome distraction seen in the press.  As these events blow over, it is usually the case that the markets settle back down to a more fundamentally justified level.

  • In this case, the balance of support and influence rests with Fin Min Gordhan who appears to be the broom that is sweeping government clean. He not only has the support of the voters at the moment, but also of the ANC if ANC secretary-general Mantashe’s comments are anything to go by. He has the support of former ministers, the markets and it would appear from the front page of the Business Day this morning the SACP as well. The groundswell of support will not go unnoticed by the political survivalist that is President Zuma who will most likely tilt in support of Fin Min Gordhan.  Whether that means that the Gordhan ultimately answers the 27 questions from the Hawks related to a rogue unit within SARS that existed at the time he was commissioner is debatable. He has framed the questions as being political motivated and is reluctant to participate if there is any chance that they might be used for a political attack on him. For his part, President Zuma is not wanting to influence processes at the Hawks out of fear that he will then be seen as overreaching in terms of his influence. It is an unholy mess that will likely be resolved this week but which will result in some casualties. 

Data/Events for the week:

  • Domestically, market participants will be gearing for a host of domestic data releases this week, with the forward looking PMI gauges and vehicle sales likely to demonstrate how the soft growth landscape has remained prevalent as 2016 gains traction. The status quo is likely to remain intact in the foreseeable future unless structural reforms are kick-started and/or aggregate demand gains meaningful traction. GDP data for Q4 will also feature prominently, with median expectations geared for a 0.8% q/q annualised expansion from 0.7% q/q in Q3. On a yearly basis, growth is expected to have decelerated notably, however, to 0.5% in Q4 from 1.0% y/y, keeping a downtrend since late 2010 intact. Although the Q4 GDP numbers are dated, it is nevertheless expected to highlight how a sub-par performance in the manufacturing sector continues to exert a drag on growth whilst agricultural output is under severe strain due to the relentless drought.

  • Externally, EZ CPI today will be in key focus in the euro area. A slew of PMI data through the course of the week will provide insight into the strength of global growth while US labour stats feature at week’s end.

Trade Weighted ZAR:

  • The trade-weighted rand weakened by 3.7% in the week-ended February 26, bringing losses for the month and year so far to 3.1% and 3.8% respectively. Losses on the week were most pronounced against the dollar, at 4.8%, as the dollar regained solid ground on Friday post strong US growth and inflation data.  At the same time, the ZAR depreciated against the other majors, albeit by a less severe degree.

  • Underpinning weakness on the local unit was idiosyncratic factors with the Budget speech last week failing to meaningfully allay investor fears surrounding SA’s fiscal trajectory, whilst reports of tensions between Fin Min Gordhan and the SARS Commissioner have aggravated matters. Though we do not see such political developments as longer term drivers of direction, one cannot ignore their influence in the short term.  A lot of bad news has been priced in through the course of the past two trading sessions, but the prospect of more volatility going forward cannot be ignored. The fashion in which the rand traded last week ultimately serves as a reminder that the currency is still inherently fragile and the need for the SARB to raise rates more aggressively to help restore some of the drivers of currency fragility is still pertinent.

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