Market Wrap

Markets @ Bidvest Bank - 29 March 2016

By Bidvest Bank
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  • The US data card was off to a characteristically mixed start to the week, but the most focus was on the sharp downside revision to Jan’s personal spending figure to 0.1% from 0.5% previously. The robust growth in the personal income figure was not revised, however, suggesting that as with retail sales figures there may be seasonal distortions at play. Last week’s Q4 GDP final reading actually showed a strong topside revision to consumptive dynamics in that quarter, to 2.4% annualized, belying the softness in the first two months of this quarter. Nevertheless, the Atlanta Fed was left to sharply revise its Q1 tracking estimate for consumer spending growth to 1.8% from 2.5% previously. The advanced report on Feb trade added to the pressure on Q1 GDP tracking estimates, seeing the Atlanta Fed push its forecast for the overall GDP Nowcast down to just 0.6% from 1.4% previously.

  • The card features two relatively minor releases today in the form of house prices and consumer confidence, but the bulk of focus will be on Fedspeak with Fed Chair Yellen’s annual remarks to the Economic Club of New York highlighting, along with scheduled remarks from two other non-voting members.








  • It will be a slow resumption for the local card with the only major event in the form of Gov. Carney speaking occurring on Thursday. Until then news flow around Brexit referendum issues will remain the most prominent driver.

  • In terms of the data card, focus will centre on the final reading of Q4 GDP growth which will probably show an unrevised 0.5% reading according to Bloomberg estimates, with private domestic demand likely to be the key driver of expansion. Note that the ONS’s revisions policy means GDP growth estimates for earlier quarters are open to change. Revisions in the Quarterly National Accounts published at the end of December suggested expansion through 2015 was weaker than previously estimated.








  • Speculation brewing that PM Abe could tomorrow announce a fresh stimulus package in tandem to confirmation of the 2016 fiscal year budget. Japan is the last of the G4 to join the easing party. BoJ Apr MPC also looming with Bank giving clear indications that expansion of existing easing measures is possible. 

  • Bloomberg- China’s economy still “emanating weakness,” according to first-quarter China Beige Book report published by CBB International. Revenue growth steadied, capital expenditure fell, job growth slid to 4-year low, retail outperformed business spending. “Collectively, our data show that that firms first stopped borrowing, then cut spending, and now are becoming allergic to hiring.”




  • Europe-wide markets resume trading amid a relatively light local card. Latest money and credit figures will be in focus to confirm the cyclical dynamics in the Zone’s economy. Moderation in growth of key metrics presaged ECB’s latest easing measures, and with the Bank placing focus on credit easing, future figures will hold more weight.

  • Inflation data will be a key focus topic this week with a number of countries releasing estimates for March inflation. Annual inflation in the Euro Zone returned to below zero in February, and while the headline rate is likely to remain sub-zero in March, there is little evidence that underlying pricing pressures are slipping for now.

    Developments worth noting:


  • Overall, starting with this evening, the week ahead could be a more positive one for the ZAR, political developments notwithstanding.  The risk is that Fed Chair Yellen in her speech later on Tuesday strikes a more cautious tone and lowers expectations for a string of US rate hikes.  The USD has already retreated slightly off its highs and the expectation is that any further downscaling of rate hike expectations will weigh on the USD.  With regards to the data for the day ahead, US consumer confidence for Mar is scheduled for release and the consensus polls suggest a modest rise in consumer confidence.  Should this data also fail to meet expectations, the weaker USD bias will reassert itself

  • On the local political front, it has been encouraging to see various organs of state kick into action with regards to investigations of state capture.  If nothing else, this issue has become such an important one, that the ANC and government officials will not be allowed to ignore it or to sweep it under the carpet.  The pressure is building all the time for changes to be rung in the upper echelons of government and if Brazil has taught us anything, it is that this pressure can yield the desired result if it ramps up high enough.

  • Just like Brazil, such pressure has also assisted the BRL stage a recovery as investors position themselves for a change of leadership showing that accountability will be had even when those in power are obfuscating the process of doing so.  Again, one must be cautious in treating these developments too negatively as the ultimate outcome may turn out to be a strengthening of the country’s democratic base where those in power are ultimately held accountable for wrong doing.

Data/Events for the week:

  • Although a shortened week, it will be a busy one ahead with some important developments both local and international scheduled for release.  Out of the US, it is important to take stock of what recent data has delivered following all the hawkish commentary from Fed officials.  The data appears to be at odds with the commentary starting with the GDPnow data released by the Atlanta Fed last week Thursday.  It fell sharply to confirm that the Q1 2016 GDP forecasts would likely be revised quite strongly to the downside with growth now expected around the 0.6% mark, down from the 1.4% before and 2% growth anticipated in mid-Feb.  This should be read against the backdrop of the data released yesterday where consumer spending barely rose last month and where inflation as reflected by the m/m growth in the Feb PCE number actually fell 0.1%. Also of great significance later in the week will be the US labour data in the form of the latest ADP (private sector data) and the official non-farm payrolls figures which will offer greater insight into the underlying strength of the US economy and whether it is continuing to add jobs at the same rate as it was.

  • Domestically, it is a shortened week but it is also a very busy one packed with data releases.  In particular, Tuesday will see money supply, credit extension due, with PPI and the trade balance all due for release on Thursday and the combination is expected to be more ZAR supportive than not as the data is likely to confirm that the SA economy is in the midst of a slowdown that will be turning the underlying fundamentals more ZAR positive

Trade Weighted ZAR:

  • Through the course of the past week, the ZAR’s performance against its major trading partners was fairly uniform to leave the trade weighted ZAR stuck within a broader consolidative range it has been trading in for some time. Nothing too much to read into this, especially if one considers the relatively thin data week that has just passed and the thinned out liquidity conditions that have made the ZAR remain relatively stable against a broader group of currencies.

  • What is interesting and important to note however is that the trade weighted ZAR now appears to be testing a longer term upward sloping trend line, which if broken to the downside through on-going resilience or through a bout of ZAR strength, could signal a trend reversal and an indication that the worst may be over for the ZAR.  That would co-incide with the expectation that fundamentals are gradually turning more ZAR supportive as would typically be seen when SA enters a period of very weak or recessionary type growth where demand for imports both from the household and business sector steadily declines.


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