1. society
2. work
3. unemployment

Strategic Research| South Africa
G LOBAL M ARKETS
05 May 2015
Monthly Insights
Executive Summary

Local economic news remained generally disappointing in April. Manufacturing
production contracted further in February. Mining production rose sharply in
February, but mainly reflects the normalisation of production. Consequently, we
have revised our GDP growth forecast for 2015 down to 2.2% from 2.4% previously.

The IMF cited power shortages and reduced government spending due to budget
constraints as the main reasons for its relatively bleak assessment of the country’s
growth prospects. Government’s drive to restore fiscal credibility depends heavily on
the outcome of the current round of wage negotiations.

The world economy is still expected to grow by about 3.5% in 2015, only marginally
up from 3.4% in 2014. News out of the US remained generally positive while the pace
of economic activity in the UK, although generally healthy, appeared to have slowed
in the first quarter of this year. The beleaguered Eurozone is starting to look a bit
stronger.

Inflation reached its trough in February and is now on an upward trend that will see it
end the year at just below the Reserve Bank’s 6% upper target range. With increases
to both the upside risk to inflation and the downside risk to economic growth, the
MPC will probably keep interest rates steady for most of the year, but continue to
make hawkish statements as inflation picks up gradually. Any delay in US interest
rate normalisation and/or continued low oil prices will remove the need for any
tightening in 2015 altogether.

The rand will remain volatile and vulnerable in the months ahead and the current
depreciation trend remains the continued theme. Resumption in dollar strength from
current levels would have dire ramifications for the rand.

Equity markets are likely to remain volatile and centred on the expectations of
central bank policy decisions. Risks remain large and caution is still well advocated.
Commodity prices are likely to remain under pressure and the oil market remains
well-supplied despite the spike in short term price action.
Key Driving Factors
Event
Risk factor
Fed hiking cycle
We maintain a view of a hike by September. The profile of the
hiking cycle is of greater consequence than the timing of the
initial hike
European politics
The Greek dilemma persists and continues to weigh on
sentiment. Remains a tail risk. Hard to quantify.
Domestic Energy Crisis
Any material deterioration will catalyse a growth downgrade
and have credit ratings ramifications
Nedbank Capital Strategic Research
Mohammed Yaseen Nalla, CFA
+27 11 295 5430
[email protected]
Reezwana Sumad
+27 11 294 1753
[email protected]
Nedbank Economic Unit
Contents
Economic overview
Interest rate insights
Dennis Dykes
+27 11 295 5435
[email protected]
Nicky Weimar
+27 11 295 6840
Currency insights
Market insights
Disclaimer
Contact details
Annexures
https://www.nedbankcapitalresearch.co.za
Important disclosures can be found in the disclaimer
Nedbank Capital
Economic Overview
Real economic trends
Local economic news remained generally disappointing in April.
Manufacturing production contracted further in February,
although at a slower rate than was the case in January. Mining
production rose sharply in February, but mainly reflects the
normalisation of production in the platinum mining industry
following the strike in the same month a year ago. The forwardlooking Purchasing Manager Index (PMI) reflects only a marginal
improvement in conditions in March and a sharp deterioration in
April, with the index still below the key 50 mark, which separates
contraction from expansion. The recovery in retail sales was more
compelling, up 4.2% y/y in February from 1.9% in January. New
vehicle sales remained generally depressed. New car sales fell by
3% y/y in the first quarter, while commercial vehicle sales declined
by 4% over the same period. Given the need for maintenance and
limited generating capacity, electricity output declined in both
January and February. Grouped together and considering that this
year’s field crop is estimated to be over 30% smaller than last
year, real GDP is not expected to grow by much more than an
annualised 1% q-o-q seasonally adjusted in the first quarter of this
year. Consequently, we have revised our GDP growth forecast
for 2015 down to 2.2% from 2.4% previously, but left our forecast
for 2016 and 2017 unchanged at 2.1% and 2.6% respectively.
Real economic trends
previously head of Transnet, as acting CEO of Eskom.
Government’s drive to restore fiscal credibility depends heavily
on the outcome of the current round of wage negotiations,
where the gap between the state’s offer and union demands
remain considerable. President Zuma recently confirmed in his
Freedom Day Speech that the National Development Plan (NDP)
forms the basis of social and economic policies, but there is little
evidence to suggest that the reforms proposed in the NDP are
being implemented consistently throughout government. Finally,
the country was once again rocked by a spate of violent
xenophobic attacks, which further tarnished the country’s imagine
across the continent and the rest of the world. Many other
African countries arranged to have their citizens repatriated,
Nigeria recalled its high commissioner to South Africa and several
countries issued adverse travel advisories.
Balance of payments trends
The trade deficit widened to R32.5 billion in the first quarter of
the year from R28.2 billion in the same period a year ago, despite
a small surplus of R482,5 million in March. Exports rose by 2.1%
y/y while imports were down 0.3%. Lower exports of minerals (off
11.3% y/y), base metals (7.6%), precious metals (3.4%) and
plastics (11.3%) were mainly to blame, while exports of vehicles
(up 28.6%) improved significantly. On the import side lower oil
imports (off 28.8% due to lower prices) helped contain the total,
while vehicles and equipment (up 16.1%) and chemical products
(9.2%) boosted the total.
Although the current account deficit is forecast to remain
sizeable in 2015, it is expected to narrow to 4% of GDP from 5.4%
in 2014, supported mainly by a significant improvement in the
terms of trade (the ratio of export to import prices) brought about
by sharply lower global oil prices and a mild recovery in the
Eurozone. These factors are expected to outweigh the impact of
load shedding on production and export volumes.
Global economic trends
Source: Statistics South Africa and Nedbank calculations
The International Monetary Fund (IMF), in its latest World
Economic Outlook (WEO), revised its forecast of South Africa’s
economic growth rate down to 2% and 2.1% in 2015 and 2016
respectively from its previous estimates of 2.1% and 2.5% released
in January. It also expects the economy to grow by only 2.4% in
2017. The IMF cited power shortages and reduced government
spending due to budget constraints as the main reasons for its
relatively bleak assessment of the country’s growth prospects.
The Fund reiterated that faster growth can be achieved by
addressing infrastructure constraints, improving government
services and implementing reforms to education, as well as labour
and product markets to improve competitiveness and
productivity.
Progress on addressing power and other infrastructure constraints
remain slow. Load shedding continued in April and strikes are
delaying construction of the Medupi power station, but, in a
generally welcomed move, government appointed Brian Molefe,
Monthly Insights | 05 May 2015
The IMF released updates of its growth forecasts for numerous
countries. The world economy is still expected to grow by about
3.5% in 2015, only marginally up from 3.4% in 2014. Thereafter
the world economy is forecast to fare slightly better than expected
in January, growing by 3.8% in 2015 (previously 3.7%) and 3.8% in
2016. Forecasts for advanced economies were left largely
unchanged, with marginal downward revisions to the US growth
forecast and slight upward adjustment to that for the Eurozone.
There were no changes to the overall growth forecast for
emerging markets. China’s growth rate was still forecast to
moderate to 6% by 2017, but the growth rates for many other
emerging economies were adjusted marginally lower. Russia and
Brazil are now expected to shrink in 2015, with Brazil forecast to
recover in 2016 while the slump in Russia is expected to persist.
News out of the US remained generally positive. Consumer
spending, the key to the US economy, picked up in March, after
bad weather kept consumers away from the shops in the first two
months of the year. Retail sales rose by just over 1% y/y in March.
Most indicators of consumer confidence rebounded strongly in
March and strengthened further in April. The pace of job creation
slowed noticeably, but the unemployment rate remained
unchanged at a 7-year low of 5.5% in March.
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Nedbank Capital
Average hourly earnings rose at a slightly faster pace in March, but
the rate of recovery in wages remained generally slow. There
have been concerns that this recovery has been ‘job rich’ but ‘pay
poor’. Given the rate of decline in US unemployment, competition
among employers for workers should have pushed wages up by
more than has been the case so far. According to the Federal
Reserve Bank of Chicago, if real wage growth had moved in line
with its historical relationship with unemployment, real wage
growth in mid-2014 should have been 3.6% higher than it actually
was. Despite these worries, households continued to enjoy the
windfall provided by the halving in gasoline prices. Headline
consumer inflation fell by 0.1% in March, dragged down by an
18.4% drop in the energy index. Construction activity also
resumed after bad weather disrupted activity earlier this year.
Housing starts recovered in March from a sharp drop in February.
Existing home sales rose strongly in March to levels last seen in
September 2013. New home sales dropped in March off
February’s high base, but remained at higher levels than prevailed
over the past six years.
Conditions for manufacturers have been less buoyant as the US
dollar surged against other major currencies and demand from
key exports markets remained generally sluggish. Industrial
production declined in March, pushing the annual growth rate
down to just over 2%, much slower than the pace that prevailed
over the past two years. Forward-looking indicators suggest that
the softer trend will continue. Consultancy group Markit’s PMI for
April reflects some gains in new orders, but these were offset by a
drop of the employment index to its lowest level since September
2009. The prices paid component, an indicator of price pressures,
remained low at 40,5 from 39,0.
The pace of economic activity in the UK, although generally
healthy, appeared to have slowed in the first quarter of this year.
Consumer confidence improved since the start of the year,
boosted by the sharp drop in fuel prices, consistent gains in
employment and steady growth in wages. The unemployment
rate slipped to 5.6% over the three months to February, down
only marginally from the 5.7% recorded over the three months to
January, but significantly better than the rate of over 7% that
prevailed at the beginning of last year. Nominal earnings grew at
a slightly slower pace of 1.7% in the three months to February
than was the case in the previous three months, but with no
inflation, real wages are now rising after years of decline. Despite
these positive forces, growth in retail sales slowed throughout the
first quarter, moderating to 4.2% y/y in March from 5.9% in
January. The slowdown in industrial activity was much steeper
than that of the services sector. Industrial production barely
increased in February compared with a year ago after growing by
just over 1% in January on the same basis.
The beleaguered Eurozone is starting to look a bit stronger.
Business confidence improved significantly in March, after dipping
sharply in February from an already muted January. Industrial
production rose by 1.6% y/y in February, its fastest pace in six
months. In March the Eurozone’s PMI rose further above the key
50 level to an 11-month high. The reading for April suggests a
mild loss of momentum as softer growth in Germany and a
stagnant France offset some acceleration in the rest of the region.
Growth in retail sales picked up noticeably since December last
year and remained relatively firm in February, growing at 3% y/y.
Monthly Insights | 05 May 2015
The gradual recovery in the labour market continued in early
2015. The unemployment rate edged down to 11.3% in February
after remaining steady at 11.4% in the previous two months.
Despite signs of improvement in key areas, consumers remain
highly uncertain about future prospects. Confidence deteriorated
even further in April. Deflationary pressures also persisted. The
headline consumer price index fell by 0.1% in March, while
concerning, it at least represents some moderation from the 0.3%
decline recorded in February. Core inflation edged down to 0.6%
in March from 0.7% the month before.
The risk of a possible Greek debt default and exit from the
Eurozone continues to cloud the region’s outlook. The new antiausterity, left-wing Greek government is weeks away from running
out of cash, desperately trying to scrape together the necessary
funds to pay for basic government services, not to mention
meeting upcoming debt payments. Negotiations with the IMF and
its European creditors have repeatedly stalled over the terms of
the bailout agreement. The markets took heart from the news
that President Alex Tsipras reorganised his negotiating team, sidelining his controversial and outspoken finance minister, whose
negotiating manner and unwillingness to compromise have
proved counter-productive. The risk of a debt default remains
high, but most experts agree that the consequences of a default
and even an exit from the Eurozone will be far less damaging this
time round than would have been the case in 2008 as most
creditors, banks and government have implemented the necessary
precautionary measures and build up sufficient reserves to deal
with any fallout. (For more see Interest Rate Insights)
In Japan, most recent indicators suggest that the country’s
recovery from recession stalled in the first four months of the
year. Both retail and industrial activity was disrupted by seasonal
factors due to the Lunar New Year holidays in February.
Consumer confidence improved in March, helped by lower
unemployment and the collapse in fuel prices. In contrast,
business confidence and conditions deteriorated, with the PMI
dipping below the key 50 mark in April.
Conditions in most emerging economies deteriorated further. As
was widely expected China recorded slower growth in the first
quarter, with GDP expanding by 7% y/y from 7.3% in the final
quarter of 2014. The main drag came from the beleaguered
property sector, but fixed investment, which accounts for 50% of
GDP, rose sharply. Retail sales growth eased but remained
general buoyant in March, while the weaker trend in industrial
production intensified and the PMI once again stayed below the
key 50 level in April.
Russia’s woes generally intensified. In March consumer
confidence plunged as unemployment increased and inflation
edged higher, resulting in an almost 9% y/y drop in retail sales.
Business confidence was also weak but at least steady, while the
rate of decline in industrial production moderated in March.
April’s PMI fell deeper into contractionary territory, suggesting
there is no immediate relief in sight. Brazil did not fare much
better. Retail sales fell in February for the first time in five
months. Consumer confidence evaporated, weighed down by a
depreciating currency, inflation at over 8% in March, higher
interest rates, water restrictions, job losses and growing distrust
of President Rousseff’s administration as the details of her
involvement in the sweeping bribery scandal at national oil
company Petrobras emerged.
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Nedbank Capital
The recession in manufacturing deepened. Industrial production
fell by just over 9% y/y in February and both the manufacturing
and services PMI dropped further into the red in April.
Nigeria and other oil-exporting countries continued to grapple
with the implications of the collapse in global oil prices. In
Nigeria, the battle to eliminate Muslim fundamentalist terrorist
group Boko Haram continues with mixed results. Nigerians also
went to the polls in April, electing the leader of the opposition
party, Muhammadu Buhari, as their new president. It is the first
time in Nigeria’s history that a candidate from the opposition
party has won an election and the handover of power occurred
without interference or violence. India’s prospects have
brightened. Industrial production accelerated in February and the
underlying trading environment for both manufacturing and
services improved significantly, with PMI readings rising further
above the key 50 mark in March and April. Tragedy struck in late
April as a devastating earthquake hit the Himalayas, plunging
neighbouring Nepal into chaos and hurting parts of India. Recent
data from most other emerging markets continue to reflect
weaker economic activity.
Global monetary policy trends
The underlying tone of most major central banks remained
dovish over the past month. In its monetary policy press release
following the 28-29 April meeting the Federal Open Market
Committee (FOMC) noted that US economic activity had slowed in
recent months, partly due to ‘transitory’ factors. Growth in
household spending eased, although household incomes were
boosted partly by lower energy prices. The pace of job creation
moderated, the housing market recovery remained slow, business
investment moderated and exports contracted. The statement
stressed that the FOMC will adopt a balanced approach when it
decides to start normalising US interest rates and that interest
rates may be lower than usual for some time even once
employment and inflation are in line with objectives.
Other major central banks maintained existing stimulatory
measures. The Bank of England left its key interest rate at 0.5%
and the size of its bond holdings at £375 billion. The Bank of
Japan also kept the size of its monetary expansion programme at
¥80 trillion per annum. The European Central Bank also left its
base lending and deposit rates unchanged, while reporting that
the implementation of its asset purchase programme of
€60 billion per month was progressing ‘smoothly’.
Most central banks in major emerging economies either
stimulated further or kept interest rates steady. The People’s
Bank of China once again lowered its reserve requirement for
major commercial banks to 18.5% in April after reducing the ratio
to 19.5% from 20% in early February. The Bank also lowered the
reserve ratio for rural commercial banks by another 100 basis
points and that for China Agricultural Development Bank by 200
basis points (for more see Interest Rate Insights). The central
banks of India, Turkey, Indonesia, Malaysia and Mexico opted to
leave interest rates unchanged. In contrast, Brazil's central bank
raised its benchmark Selic rate by a further 50 basis points to
13.25 percent, in a further bid to regain credibility. Since the
beginning of this year it has hiked rates by 150 basis points, with
rates now 600 points higher than the low in the cycle in early
2013.
Monthly Insights | 05 May 2015
Relative equity performances
Source: Thompson Reuters Datastream and Nedbank Calculations
Relatively healthy risk appetites prevailed for most of the month,
as investors concluded that the earlier rally in the US dollar was
overdone and expectations of the pace of US interest rate
normalisation was perhaps too ambitious. Net purchases of South
African assets in April amounted to R15.37 billion, with net
purchases of R13.7 billion of equities and R1.6 billion of bonds.
Risk appetites are likely to change rapidly in response to any news
on US policy normalisation, economic developments in China and
other geopolitical risk factors affecting emerging markets.
Credit demand
Growth in private sector credit extension rose to 8.9% y/y in
March from 8.7%, but remains subdued for this stage of the
economic cycle. Credit has been driven by demand from
companies, which was up 13.9%, while extension to households
remains poor at 3,6%. Asset-backed credit remains subdued,
largely because of weak growth in residential mortgages.
Household finances and spending should be supported by lower
inflation and stable interest rates this year. However, growth in
credit extension is likely to remain subdued due to the weak job
market and confidence, tight lending standards and as households
reduce debt accumulation ahead of the expected resumption of
monetary tightening later in the year. Corporate credit demand
will be constrained by weak confidence and the generally subdued
economic environment as well as electricity crisis, which will make
companies cautious of committing to large capacity expansion
projects.
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Nedbank Capital
Trends in household and corporate credit demand
Interest Rate Insights
There have been no surprises to either inflation or economic
growth trends over the past month. The rise in inflation in March
was widely anticipated and in line with the Reserve Bank’s own
forecasts. The key risks to the inflation outlook remain global oil
prices and the rand. International oil prices are expected to rise
and the rand is likely to come under renewed pressure as interest
rates in US and UK start to move higher in the second half of this
year. The risks to the inflation outlook therefore remain on the
upside. Most indicators of economic activity continue to reflect
sluggish growth in most sectors, with activity undermined by load
shedding, sporadic labour issues, low levels confidence as well as
drought. However, global issues remain firmly in the driving seat.
Source: SARB
Inflation
Inflation and the rand
Headline inflation rose to 4% in March, up from 3.9% in February
and 4.4% in January. The upturn was mainly due to higher petrol
prices. March is also a heavy survey month, with relatively large
increases recorded in education costs, domestic workers’ wages
and housing costs. Underlying inflation remained relatively high,
unchanged at 5.7% y/y in March, which is still uncomfortably close
the Reserve Bank’s upper 6% inflation targeting limit.
Inflation reached its trough in February and is now on an upward
trend that will see it end the year at just below the Reserve
Bank’s 6% upper target range. Inflation will be pushed higher by
a sliding rand and rising oil prices later this year. Rising food prices
due to the poor field crops season are likely to amplify the upward
trend.
Monthly Insights | 05 May 2015
Source: Stats SA and Nedbank Calculations
The global fixed income market was abuzz with activity in April,
with the Chinese central bank cutting the required reserve ratio
by 100 basis points, to 18.5% - the lowest since 2011 in a bid to
boost liquidity in the economy and spur lending and spending. This
was also the biggest cut since 2008, as the PBOC tries to avoid a
sharper slowdown from current levels. The latest cut is expected
to add a trillion yuan ($160 billion) in liquidity to the monetary
system, according to Reuters. Since November 2015, the PBOC
have cut lending rates by 65 basis points, the sharpest cut since
2008. The deposit rate was also cut by 50 basis points and is
currently at the lowest level since 2010. Further interest rate cuts
cannot be ruled out given depressed prices and growth in the
economy. Large capital outflows have also been a key concern of
the PBOC, hence the recent easing measures in order to stave off
a sharper decline in capital flows and growth.
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Nedbank Capital
PBOC cuts the reserve requirement by the most since 2008
reflective of the market expectations around timing of the hike
while the OIS curve is informing the expectation of the flatter
profile of the hiking cycle.
In contrast, the GBP OIS curve has seen an uptick in the
probabilities for a 25 bps hike by the BOE, since December. Swaps
are now pricing in a 109% probability for a hike in 12 months’
time, and possibly 2 hikes of 25 bps each within 2 years. This is
mainly the result of the slightly more hawkish BOE currently, and
expectations for a Fed hike mounting.
Source: Bloomberg, Nedbank
Notwithstanding the developments in China, the key factor of the
recent market volatility is the uncertainty regarding the timing of a
Fed rate hike. However, this uncertainty is not unwarranted, given
the massive swings in sentiment and commentary from the Fed
since November 2014. Most recently, over the past 2 months, the
Fed has become decidedly hawkish, which is in stark contrast to
the actual labour market and growth data being released in the
same time, which showed significant disappointment. But in the
latest minutes (April) the FOMC were leaning on the dovish side
given the data disappointments in Q1 and this helped guide the
expectations around the timing of the hike toward September
rather than June.
Should the Fed hike sometime this year, the USD is expected to
extend the current rally, while equity prices may adjust lower as a
result of the increased cost of borrowing, treasury yields are likely
to rise given higher inflation expectations, and this may trigger
further hikes by other DM and EM central banks in order to stem
currency weakness and maintain a favourable yield differential to
US treasuries.
Hawkish BOE minutes results in markets expectations of a
BOE hike rising
GBP Overnight Index Swaps - Probability of a 25 bps hike by the BOE
350%
1 yr swap
300%
250%
301%
1.5 yr swap
2 yr swap
227%
196%
200%
177%
152%
150%
151%
134%
109%
100%
97%
50%
The capitulation in the market’s interest rate expectations can be
depicted by the USD overnight index swaps (OIS), which priced in
a much shallower hiking cycle after the December FOMC meeting,
as the long-end of the curve fell by 40 basis points. Despite this,
the market’s expectation for a June 2016 rate hike was left
unchanged. Recently, both the pace and timing of a rate hike has
accelerated, as the OIS market now points to a hike in April 2016.
The market is pricing in less of a hike by the Fed compared to
previous months despite hawkish FOMC
Eurodollar future: Probability of a 25 bps hike by the Fed
342%
350%
Jun '15 €/$ Future
300%
250%
Sep '15 €/$ Future
268%
Dec '15 €/$ Future
CURRENT
Dec-2014
Sep-2014
Source: Bloomberg, Nedbank
The mounting expectation for tighter monetary policy in the UK
and US is mirrored by DM real rates since the start of this year.
Inflation has plunged as a result of globally lower commodity
prices. This has resulted in sharply higher and positive real rates,
especially since interest rates have remained unchanged during
this period. (Real rates = nominal rate – inflation). This is the first
time since 2010 that real interest rates are positive, indicating the
extent of the disinflation pressures in the global economy and
have somewhat neutralised expectations around the pace of the
hiking cycle, which is a key theme.
228%
200%
DM real rates rise as inflation plunges
162%
150%
0%
140%
122%
100%
70%
76%
50%
22%
0%
CURRENT
Dec-2014
Sep-2014
Source: Bloomberg, Nedbank
However, looking at the Eurodollar futures market (time deposit
rates with a 3 month maturity), the September 2015 future is
pricing in a 70% probability of a 25 bps hike by the Fed, while the
December 2015 future is pricing in a 140% probability of a 25 bps
hike by December. This is lower than the probabilities seen in
September and December last year, but is quite high, given muted
OIS probabilities. At this stage, the Eurodollar futures are more
Monthly Insights | 05 May 2015
Source: Bloomberg, Nedbank
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Nedbank Capital
5-year inflation expectations tick higher as markets price in
tighter monetary policy in UK, US
Greece had until 30 April to submit the list of reforms to the Troika
and the finance ministers. Later on, the EU approved reforms
pledged by Greece, however the question remains as to how well
these reforms will be implemented, if at all. The Troika may
decide to allocate the €7.2 billion in bailout funds to Greece (in
tranches), and begin negotiations regarding the restructuring of
the external debt by June.
What’s more concerning is that Greek’s issuance of S/T debt and
T-bills have reached the €15 billion cap imposed by the IMF and
EU. The government faces upcoming T-bill maturities and interest
payments to bondholders, with the wide-held view that these will
be rolled-over in order to delay repayment. In early April, €1.1
billion was raised through a 6-month T-bill issuance, which was
taken up by domestic investors.
Source: Bloomberg, Nedbank
Inflation expectations have bounced, as depicted by the 5-year
breakeven inflation rates. In the UK and US, this turn in inflation
expectations started since January, and only recently in the
Eurozone (since April). This trend will likely persist as commodity
prices normalise and higher transport costs start to filter through
to households as the low base in energy prices is worked into the
system.
Alongside the “policy normalization” debate, the continued Greek
crisis remains on the agenda. The key dilemma within the
Eurozone is whether or not Greece will default against their debt
repayments. With the upcoming deadlines pertaining to Greek
debt repayments culminating into negotiations with the Euro
Working Group and the IMF, the question remains as to whether
the Greek government will be able to shore up enough funds to
appease both the external creditors – the IMF, ECB (and Germany
by default) and the EIB, and local bondholders (predominantly
Greek financial institutions). Over the past three weeks, Greece
has had to make a €448 million loan repayment to the IMF and an
€80 million interest payment to the ECB.
Greece was initially required to provide a list of reforms to the
finance ministers at the meeting in Riga, but a list was not
provided as Greece remains stuck in a deadlock with its’ main
creditors (the ECB and IMF) regarding the terms of the reforms.
The purpose of the meeting was for Greece to negotiate bailout
funds that it requires from the finance ministers.
Also, Greek banks remain excluded from ECB’s QE, and essentially
from emergency liquidity from the ECB. This means that it is
becoming increasingly difficult for Greece to source funds,
meaning that there is a possibility that Greece may default on the
€9.3 billion worth of repayments due to external creditors over
the next 4 months (this excludes possible rollovers of maturing
bonds).
Greek yields soar as bail-out uncertainty persists
Source: Bloomberg, Nedbank
Timeline of Greek debt repayments: July is expected to be
the most painful month for Greece
Greek debt payments due
12000
ECB/EIB Bond repayment
10000
Govt bond matures
*Assuming no rollovers
IMF loan repayment
Monthly Insights | 05 May 2015
8000
€ millions
Much uncertainty still remains as to how large of a shortfall of
funds Greece is seeing, as officials indicated that the government
was €350-€400 million short of money required to pay salaries and
pensions by the end of this month, but subsequently retracted the
statement saying that the funds have been sourced from nonlisted companies willing to put up reserves with the Bank of
Greece. Furthermore, the Greek government ordered
municipalities to put up its spare reserves into a Bank of Greece
account for state use. This is being challenged by the mayors in
court.
Total cumulative 4month repayment*:
€25 billion
3480
T-bill matures
6000
1237
3670
4000
994
464
5200
3188
2000
3000
2800
1000
0
May-15
Jun-15
Jul-15
Aug-15
Source: Bloomberg, Nedbank
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Nedbank Capital
Given the tumultuous global backdrop, it is not surprising that
domestic factors have taken the backseat. Recently, SA has
experienced negative media coverage regarding a surge in violent
activity, along with the worsening electricity situation as Eskom’s
leadership is shuffled yet again, and load shedding hampers
production in the economy. These factors have also played a hand
at hampering sentiment towards the local markets.
This is evident in the trajectory of SA’s 5-year CDS spreads – a
gauge of credit risk in the economy. The 5-year CDS spread has
declined by just 2 basis points since early January and rose by 44
basis points since early December. This is in stark contrast to the
EM 5-year CDS index, which has fallen by 34 basis points since
early January, and risen by only 16 basis points since early
December.
Currency Insights
The rand was steady in April, strengthening against both US dollar
and the euro. Despite ugly scenes of xenophobic attacks and
disappointing economic statistics, the trade weighted rand
appreciated by 1.2% in April. For the year to date, the rand is
marginally firmer on a trade-weighted basis, up by 1.0%. Global
factors dominated the rand’s movement in April, brought about
mainly by a pause in the US dollar’s relentless upward march as
investors grappled with the timing of US monetary policy
normalisation. On our measure of purchasing power parity the
rand is currently about 5.5% undervalued.
Dollar index tests 2014 bull trend line
This index is comprised of an equally weighted basket of a sample
of ten major EMs 5-year CDS spreads (excluding India), and
provides an indication of how EM 5-year CDS spreads are trending.
This will likely make the cost of funding more expensive for the
sovereign as well as for large companies, while bond and equity
market flows are hampered by poor sentiment. In the context of
rising global rates, this will likely compound the cost of funding
for SA Inc.
SA credit risk rises and diverges from EM trend for YTD
Source: Bloomberg, Nedbank
Source: Bloomberg, Nedbank
Outlook
Due to deteriorating growth within Asia, monetary policy in the
region will likely remain highly accommodative in order to prop up
GDP and prices. The Eurozone is on track with its recovery but the
pace still remains quite fragile, while price pressures remain nonexistent at the moment. Hence the ECB will likely keep monetary
ultra-loose in order to increase inflation. The UK and US are both
expected to hike interest rates, with a Fed hike expected in
September 2015, while a BOE hike will lag that of the Fed later in
the year or in early 2016/Q1.
With increases to both the upside risk to inflation and the
downside risk to economic growth, the MPC will probably keep
interest rates steady for most of the year, but continue to make
hawkish statements as inflation picks up gradually. A 25 basis
point hike in interest rates is expected November. However, much
will depend on the movement of oil prices and the rand over the
coming months. Any delay in US interest rate normalisation
and/or continued low oil prices will remove the need for any
tightening in 2015 altogether.
Monthly Insights | 05 May 2015
The last week in April saw some resumption in dollar strength or
at least a partial slowing in the dollar weakening trend that has
been prevalent over the last month. The dollar index is now
testing the June 2014 bull trend and given the stretched
momentum indicators as well as an ever decreasing timeframe to
the imminent Fed hiking cycle, we would expect this level to
broadly hold and act as support for a resumption in a cyclical
bullish dollar trend in the near to medium term. The structural
long term dollar bull story remains the major trend with a long
term target of at least 120 index points. When and if this
transpires, the implications for the rand would be
commensurately dire. We discuss this below.
Euro extends short term consolidation
Source: Bloomberg, Nedbank
Page 8 of 20
Nedbank Capital
The extension of dollar weakness over the month led the euro to a
test of $1.13/€ (76.4% Fibonacci retracement) before the dollar
found some composure, as discussed above. We cannot rule out a
test of the $1.15-$1.18/€ level in the near term as momentum
indicators, while stretched, do remain open to the upside.
However, we would expect these broad levels to hold and for the
euro to resume its downtrend, aligning to our view on the dollar
index. A break back below the short term support of $1.10/€
would reopen the $1.05/€ levels corresponding with the 2015
lows. Only a sustained break below these lows would open up
longer term targets of parity and below, confirming the longer
term ranges identified previously. The Greek crisis outlined in the
Fixed Interest Insights continues to dominate the near term news
flow.
Sterling breaks above declining channel in near term
Aussie dollar remains structurally weak
Source: Bloomberg, Nedbank
The Aussie dollar has largely exhibited the fate of commodity
based economies with close ties to China. Slowing Chinese
macroeconomic fundamentals have pressured the unit on a
structural basis over the long term, not too dissimilar from the
fate of the South African rand, but excluding the emerging market
risk premium. The consolidation and resumption of a US dollar bull
trend will expose the Aussie to further weakness targeting the
2015 lows around $0.75/AUD with resistance to further gains
around the $0.80/AUD likely to hold. The recent cut in interest
rates by the RBA to a record low will likely maintain structural
pressure on the Aussie.
Turkish lira trend acceleration may compel a rate hike
Source: Bloomberg, Nedbank
As with the other majors, the pound benefitted from a deeper
dollar consolidation over the month before pulling back. We
identified the upper end of the channel (red) as previous
resistance with the surge late last month constituting a short
term break. This channel is currently being tested from above.
Should this break be confirmed (not our base case) $1.60/£ would
be the next target.
A higher probability remains a break back into the channel and a
move toward $1.45/£. Much of this relies on a stronger dollar
view although the UK election, due to come to fruition this
month, still predisposes sterling to some weakness and a small
risk premium relative to other majors.
Monthly Insights | 05 May 2015
Source: Bloomberg, Nedbank
Of recent interest among the global extended majors has been the
Turkish lira. A continuation of weak economic data and higher
inflation has propelled the lira to its weakest levels against the US
dollar. The volatility of central bank activity in Turkey (a hike of
550bps in early 2014 followed by cuts of 250bps subsequently) has
done little to instil confidence coupled with socio-political tensions
which continue to lurk on the periphery. A continued surge in
inflation will likely push the Turkish central bank to hike rates
from current levels which may arrest the acceleration in lira
depreciation as characterised by the current channel. Only a break
below the current channel would presage a return to the longer
term trend support along the 100 and 200 day moving average,
currently around TRY2.50/$ and TRY2.35/$ respectively.
Page 9 of 20
Nedbank Capital
EURZAR surprises to the upside
Rand tests 100 day moving average, maintains depreciation
Source: Bloomberg, Nedbank
Source: Bloomberg, Nedbank
The USDZAR enjoyed the lower liquidity in the last week of April
(due to many South African public holidays) and pushed to a low
around R11.71/$ ahead of the Fed’s FOMC. It has subsequently
given back these gains to trade back above the R12.00/$ mark at
the time of writing. Momentum indicators have flat lined in the
short term and are therefore not proving instructive. The mean of
the current depreciating trend is currently around R12.20/$,
corresponding with the declining trend line through the 2015 tops.
A break above this level would open up R12.30/$ and R12.60/$ as
the next short term targets with a 2 standard deviation extension
of the trend currently at R13.20/$ on the upside. Whilst we do not
have a complete rand capitulation as our base case, any extension
in the dollar rally, as discussed above could have dire ramifications
for the local unit which remains predisposed to weakness. As
stated before, much hinges on the US policy direction in the near
term.
The surprise among the crosses has been the EURZAR. While we
expected the reverse pennant formation to break lower, the rally
in the euro (see above) has led to a break out of this formation,
effectively negating the formation. While momentum appears
stretched, projecting a pullback to the range between R13.00/€
to R13.20/€, we can no longer apply a high probability to a
strong move lower.
Leaders and Laggards
GBPZAR range bound
Source: Bloomberg, Nedbank
Source: Bloomberg, Nedbank
The GBPZAR spread has been comparatively lacklustre
maintaining the broad range which has remained in play since
early 2014. This cross has failed to break below the 2011 rand
depreciation trend line and channel resistance which remains our
lower bound, currently around R17.70/£ and R17.05/£
respectively. Momentum indicators favour a move lower rather
than a break above the channel currently at R18.50/£.
Monthly Insights | 05 May 2015
Over the last 4 months, we have seen the Turkish lira lag its EM
peers considerably, with most of the recent pressure (as outlined
in detail above), propelling it to the top spot as the worst
performer amongst the extended majors as tracked by
Bloomberg. The Brazilian real has been occupying the top spot
until being overtaken by the lira last month. The real continues to
languish as Brazilian macro data remains patchy while sociopolitical unrest remains a key theme as well.
As discussed last month, the Danish krone’s fate remains tied to
the euro given the currency peg which remains in force.
On the positive side, the ruble has remained a performer this year,
but largely due to the considerably low base set last year. While
the year to date performance appears admirable, it needs to be
contextualised by the slide of over 46% over the last 12 months to
date.
Page 10 of 20
Nedbank Capital
The Swissie continues to benefit from safe haven demand while
the Taiwanese dollar remains an emerging market outlier but
largely flat against a strong greenback.
Outlook
The rand will remain volatile and vulnerable in the months ahead
tracking changes in global risk sentiment. The outcome of the
Greek debt bailout negotiations, the pace of quantitative easing in
the Eurozone, the risk of a hard landing in China and, probably
most importantly, the uncertainty about the timing and pace of US
policy normalisation will weigh on emerging markets.
Domestically, continued concerns about the large local twin
deficits and the uncertain policy environment as well as load
shedding may exert pressure later this year.
On a technical basis, the rand has continued to use the lower
bands of the current depreciation trend as its floor. As such, the
current depreciation trend remains the continued theme with
the establishment of successively higher trading ranges.
Resumption in dollar strength from current levels would have
dire ramifications for the rand and while partially offset on a
trade weighted basis, would continue to weigh on sentiment in
the medium to longer term.
Market Insights
Global equity markets, specifically the US, have provided the
lead to our own bourse. However, this directional view masks the
relative outperformance and underperformance of each of these
regional markets. Our generally optimistic view on European
equity markets (on a currency hedged basis) has panned out as
stimulus measures in the region have supported asset prices. Over
the last 12 months, the Eurostoxx 50 is up over 12% after peaking
at close to 20% during the last month in local currency terms.
However, this has come at the cost of currency depreciation as the
dollarized performance was around -9.5%. The S&P 500 was up
around 12.5% after moving sideways over the last 2 months with
the FTSE 100 the laggard in local currency terms, up around 4.5%
over 12 months. Momentum and valuation indicators on US
equities remain relatively more elevated than their European
peers at this stage, signalling continued caution is warranted.
By contrast to their developed market peers, many emerging
markets have continued to languish in dollar terms. With the
exception of China and India which were up around 26% and 15%
respectively over the last 12 months, other EM equity markets
have been broadly flat as currency depreciation largely offset local
currency gains. The JSE All Share index is largely flat in dollar
terms, outperforming other EM’s such as Turkey, Russia and Brazil
which were all negative. This illustrates that the nature of most
EM’s local currency returns remain broadly a currency story.
Eurostoxx outperforms in local currency terms
Source: Bloomberg, Nedbank
Monthly Insights | 05 May 2015
Page 11 of 20
Nedbank Capital
EM equity markets (ex China and India) lacklustre in $ terms
Commodities
The Brent crude price has surged to the highest level for the year
to date in recent weeks, boosted by Chinese stimulus measures,
expectations for a slowdown in the US inventory build-up, along
with geopolitical tensions between Saudi Arabia and Yemen. This
however belies the fact that actual production from Saudi Arabia
has been rising in order to compete for market share and drive out
inefficient competitors. This while actual inventory levels have
risen in the US to record highs.
Source: Bloomberg, Nedbank
In the context provided above, the JSE Top 40’s performance to
consecutive record highs (around 1.5% below all-time highs at the
time of writing) presents a less attractive alternative for the dollar
based investor, but a compelling currency hedge to the local
investor. Despite our rather cautious outlook on domestic
equities, the local bourse has remained supported, tracking US
equities. Given the extremely stretched momentum indicators,
we remain cautious, although current price action has constituted
a rolling correction rather than a substantive correction as we
expected. This would increase our sense of concern of a correction
in the medium term.
Saudi Arabia remains the dominant player and has boosted
monthly production to 10.3mbpd (increase of 659 000 barrels per
day). The increase is equivalent to half the Bakken field’s (one of
the largest shale formations in the US) total production being
added in a single month. Given the extended momentum
indicators as well as horizontal resistance around current levels,
we would expect crude to reverse lower in the near term,
targeting the lower $50’s as an interim target.
Weekly oil inventories close to record highs
Top 40 index remains close to all-time high
Source: Bloomberg, Nedbank
Brent crude faces short term resistance, may reverse lower
Source: Bloomberg, Nedbank
Source: Bloomberg, Nedbank
Monthly Insights | 05 May 2015
Page 12 of 20
Nedbank Capital
Brent usually trades at a premium to WTI given the export caps on
US crude. While the recent increase in Saudi Arabian capacity has
pushed the spread lower from around $13/bbl in February to
current levels just below $7/bbl, the spread is expected to remain
in play as other global players are unable to increase the
productivity of existing capacity to the same extent as the US and
Saudi Arabia. The current spread is significantly below the long
term average around $11/bbl.
Gold continues to consolidate along $1200/oz.
Brent/WTI spread remains in play despite uptick in Saudi
production
Source: Bloomberg, Nedbank
Source: Bloomberg, Nedbank
Local white maize prices have been supported due to droughts in
key maize-planting regions in the country. This has resulted in a
131% surge in the maize price since the low in February 2015.
Because of a shortage of locally produced maize, SA has had to
import close to 1 million tons of maize for consumption. The
added impact of the weaker exchange rate may also place upside
pressure on local inflation. SA food prices generally lags the maize
price by between 6 to 9 months, hence the chart below shows
that the SA food and non-alcoholic beverages subcomponent in
the CPI basket will likely rise in line with the higher maize price.
SA food prices likely to rise as maize price surges
The gold price has been quite volatile lately, as a result of the
volatile dollar. Overall however, the price has trended close to, or
along, the $1200/oz. level, and above the declining trend line
since 2012. Momentum indicators are currently neutral, indicating
that the market is now awaiting some sort of catalyst for a break
in either direction. This may likely be a Fed interest rate hike
announcement, or related policy responses from the Fed and/or
BOE. Upside targets are the $1300/oz. and $1380/oz. levels, while
downside support will likely hold at $1160/oz. and $1125/oz.
Outlook
Equity markets are likely to remain volatile and centred on the
expectations of central bank policy decisions. Extended
valuations have taken a backseat to strong upside momentum
which has been spurred by a better than expected US earnings
season. Notwithstanding this, risks remain large and caution is
still well advocated.
Commodity prices are likely to remain under pressure because of
the strong dollar, however in terms of gold, the market seems to
be awaiting a catalyst for a break in either direction. Further dollar
strength will keep the gold price volatile, until a possible Fed
interest rate hike this year.
The oil market remains well-supplied, but despite this, the price
of Brent has risen to the highest since December 2014. This move
may prove overdone as fundamentals dictate the next move
lower. Rising Saudi supplies also favours a move lower in the Brent
price in the near term.
Source: Bloomberg, Nedbank
Monthly Insights | 05 May 2015
Page 13 of 20
Nedbank Capital
Annexures
Table 1 : SARB checklist
Factor
SARB’s recent interpretation (MPC 26/03/15)
Recent tendency
International economy
Growth
“The global economic outlook remains uncertain, with a moderate
Global growth remains uneven with developed economies being favoured over
developing economies.
slowdown in the US and China, and an improvement in the outlook and
performance of the euro area and Japan... The larger emerging markets
continued to be a drag on global growth. China’s economic prospects
remain relatively subdued with most domestic demand indicators
weakening since the beginning of the year. Consensus forecasts are for
both Russia and Brazil to record negative growth rates in 2015. The outlook
for the Indian economy, by contrast, is more positive.”
Inflation and interest rates
“While the US prepares to tighten monetary policy, the global trend has
Global inflation remains benign.
generally been towards policy easing or maintaining an accommodative
bias. Both Japan and the euro area have continued with their quantitative
easing while a number of countries have eased their policy further, amid
benign inflation pressures and concerns about deflation in some countries.”
Oil
“The international oil price assumption remains unchanged from the
previous meeting, with a moderate increase over the next two years.”
Food
“The recent downward trend in consumer food price inflation is forecast to Global food prices remain subdued.
be reversed in the coming months, following the severe drought in some of
the maize producing areas of the country. With drastically reduced maize
crop estimates, South Africa is expected to become a net importer of maize
during the year, and spot prices have moved closer to import parity. The
spot price of white maize, for example, has increased by around 30 per
cent since the beginning of the year, reinforced by a depreciating currency
and despite moderating global prices.”
The oil price averaged $58,73 per barrel in April, higher than the $56,71 per
barrel it averaged in March.
Domestic economy
Balance of Payments
“Although the current account deficit to date has been relatively
comfortably financed, the global capital flow environment is increasingly
challenging, particularly against the backdrop of expected increases in US
interest rates.”
The current account deficit improved to 5,1% of gdp in the fourth quarter from
5,8% in the third.
Exchange rate (rand)
“The rand exchange rate continues to be the main upside risk to the
inflation outlook, and remains highly vulnerable to the timing and pace of
US monetary policy normalisation. The extent to which US rate increases
are priced into the exchange rate remains uncertain. While the weaker
euro has provided some offset, and therefore a more moderate
depreciation of the trade-weighted exchange rate, this effect is partial.
Furthermore, the rand will also remain sensitive to domestic
developments, including the slow pace of contraction in the deficit on the
current account of the balance of payments.”
The rand remains weak and vulnerable, although it was marginally firmer in
April compared with March.
Labour markets (unit labour
costs)
“The recent higher trend in wage settlements has the potential to put
further upside pressure on inflation.”
High wage settlement demands continue to pose a threat to inflation and
growth.
Administered prices
“The electricity price assumption is also unchanged, with increases of 11,6 Eskom received a once off electricity tariff hike of 12,7% for this year. The
per cent assumed from July 2015 and July 2016. However, there is a high original agreement with Nersa was for an 8% per annum tariff increase over 5
possibility of significant further electricity tariff increases.”
years. It does seem that Eskom has made another application to Nersa for
further tariff increases.
Domestic demand and
supply
“The outlook for the domestic economy remains overshadowed by the
Growth is expected to average 2,2% this year, from 1,5% in 2014.
electricity supply constraint, which appears to have had an adverse effect
on recent economic activity. This constraint is likely to persist for some
time, and has resulted in a downward revision of short-term potential
output to between 2,0 and 2,5 per cent. Nevertheless, some improvement
on the 2014 growth rate of 1,5 per cent is expected in 2015, in the absence
of protracted work stoppages.”
Monetary conditions
“Trends in bank credit extension to the private sector have remained
Credit growth remains subdued for this point of the business cycle, but is likely
relatively unchanged, with highly divergent patterns in loans granted to the to increase only moderately in 2015, supported by some improvement in
corporate and household sectors.”
household finances and an anticipated pause in monetary policy tightening.
Fiscal policy
“Fiscal policy is set to continue on its consolidation path. As outlined in the
recent Budget Review, the projected deficit for both 2014/15 and 2015/16
is estimated at 3,9 per cent of GDP, despite lower GDP growth forecasts,
and is expected to narrow to 2,5 per cent of GDP by 2017/18.”
Indicators of inflationary
expectations
“…the Committee remains concerned about the possible impact on
Inflation will likely rise dramatically in the second half of the year on the back
of rising oil prices as well as a weaker rand.
inflation expectations which remain at the upper end of the target range
over the longer term…The Committee assesses the risk to the inflation
outlook to be on the upside, with the possibility of further electricity tariff
increases accentuating this risk.”
Monthly Insights | 05 May 2015
The 2015 budget introduced higher taxes for higher income earners, used the
fuel levy to boost general revenue and again emphasised cost controls.
Revenue undershot budget in 2014/15, largely due to lower company tax
collections as well as lower VAT and international trade taxes. Expenditure
came in below budget and also lower than October 2014 estimates.
Page 14 of 20
Nedbank Capital
Table 2 : Influences on the rand
Factors
Effect
Recent
Tendency
Expected longer-term
The dollar should strengthen with the
start of interest rate normalisation in the
US and looser monetary policy in Europe
and Japan.
External or international
US dollar
Weak dollar normally implies firmer
trade-weighted rand.
The dollar has softened mildly against
the Euro, but remains strong.
Commodity prices
Strong commodity prices are rand
supportive.
Commodity prices have been relatively In the long term, current gluts are likely
subdued.
to dissipate. However, a resumption of
the commodity supercycle looks unlikely
in the foreseeable future.
Interest rates
Higher = positive, but depends on
circumstances.
Financial markets believe that the first The pace of US interest rate hikes in the
rate hikes in the US may occur mid-2015. second half of next year will probably be
slower than the markets are currently
anticipating given the impact on the
dollar.
Emerging market perceptions Positive = good for rand.
There are signs of weakness in key
emerging market economies.
The global economy is still under
pressure and will probably periodically
disappoint, with emerging markets hurt
by negative perceptions. China remains
key, with continued concerns over
growth prospects.
Predominantly domestic
Growth perceptions
Rand strength if perceptions of relative Nedbank GEU projects growth to
Electricity supply constraints and poor
growth are positive
improve to 2,2% this year from 1,5% last policy decisions are likely to continue
year, but the improvement is mainly due weighing on domestic growth.
to the low base.
Current account
Large unsustainable deficit would be
rand negative.
Policy and policy perceptions Rand positive, if promotes financial
stability and economic growth.
The current account deficit improved to Will remain wide as imports remain high;
5,1% of gdp in the fourth quarter from sustainability depends on consumer/
5,8% in the third.
investment mix, commodity price cycle,
policy and external perceptions.
The 2015 budget introduced higher taxesFiscal policy is mostly on track although
for higher income earners, used the fuel the public sector wage negotiations
levy to boost general revenue and again present a key immediate danger. Other
emphasises cost controls. Revenue
policies will continue to send mixed and
undershot budget in 2014/15, largely
confusing messages for investors.
due to lower company tax collections as
well as lower VAT and international
trade taxes. Expenditure came in below
budget and also lower than October
2014’s estimates.
Exchange controls
Relaxing potentially negative for rand in Some relaxation for individuals was
Exchange control relaxation has been
short term, positive in long term as
announced in the 2015 National Budget. used as a tool to take upward pressure
foreign investment picks up.
off the rand but this is no longer
necessary. Gradual move to prudential
limits.
Abnormal flows
Inflows/ outflows related to FDI
transactions
Rand under- or overvalued?
If overvalued then will depreciate in long Undervalued on a purchasing power
term and vice versa.
parity basis.
Inflows likely to be limited in the current Uncertain. Inflows should pick up if
climate.
political and policy environment
becomes clearer and the global climate
settles, but these are still elusive.
Some reversion to longer-term PPP
possible, but unlikely while US interest
rates trend higher.
Source: Nedbank Economic Unit
Monthly Insights | 05 May 2015
Page 15 of 20
Nedbank Capital
Economic data releases and MPC meeting dates
Economic data releases
Date
Time
Indicator
Period
Previous
05/05/2015
11:30
SACCI Business Confidence
Apr
89.1
South Africa Unemployment
1Q
24.30%
05/05/2015
06/05/2015
12:00
BER Consumer Confidence
1Q
0
08/05/2015
08:00
Gross Reserves
Apr
$46.44B
08/05/2015
08:00
Net Reserves
Apr
$41.28B
12/05/2015
13:00
Manufacturing Prod SA MoM
Mar
0.70%
12/05/2015
13:00
Manufacturing Prod NSA YoY
Mar
-0.50%
14/05/2015
11:30
Gold Production YoY
Mar
-8.00%
14/05/2015
11:30
Mining Production MoM
Mar
3.80%
14/05/2015
11:30
Mining Production YoY
Mar
7.50%
14/05/2015
11:30
Platinum Production YoY
Mar
26.70%
20/05/2015
10:00
CPI Core MoM
Apr
1.10%
20/05/2015
10:00
CPI Core YoY
Apr
5.70%
20/05/2015
10:00
CPI YoY
Apr
4.00%
20/05/2015
10:00
CPI MoM
Apr
1.40%
20/05/2015
13:00
Retail Sales Constant YoY
Mar
4.20%
20/05/2015
13:00
Retail Sales MoM
Mar
1.90%
21-May
5.75%
21/05/2015
SARB Announce Interest Rate
25/05/2015
South Africa Budget
Apr
-1.23B
Mar
98.7
26/05/2015
09:00
Leading Indicator
26/05/2015
11:30
GDP YoY
1Q
1.30%
26/05/2015
11:30
GDP Annualized QoQ
1Q
4.10%
28/05/2015
10:00
PPI MoM
Apr
1.80%
28/05/2015
10:00
PPI YoY
Apr
3.10%
29/05/2015
08:00
Money Supply M3 YoY
Apr
7.42%
29/05/2015
08:00
Private Sector Credit YoY
Apr
8.88%
29/05/2015
14:00
Trade Balance Rand
Apr
0.5B
Source: Bloomberg, Stats SA, South African Reserve Bank
SARB MPC meeting dates 2015
19 – 21 May 2015
21 – 23 July 2015
21 – 23 September 2015
17 – 19 November 2015
SARB Governor Kganyago typically addresses the market on the third day of the MPC meeting from 15:00 to announce the repo rate decision, which
was hiked to 5.75% (previously 5.50%) following the 15-17 July 2014 MPC meeting and subsequently kept on hold
Monthly Insights | 05 May 2015
Page 16 of 20
Nedbank Capital
Nedbank Economic facts and forecasts
Facts and forecasts (annual) of key economic variables
2013
2014
2015
2016
2017
2.2
1.5
2.2
2.1
2.6
-5.8
-5.4
-4.0
-4.6
-4.0
Dollar
1 421.8
1 257.5
1 197.0
1 206.0
1 217.5
Rand
13733
13644
14763
15410
16145
$-Rand
9.66
10.85
12.33
12.78
13.26
Euro-$
1.33
1.32
1.05
0.98
0.95
$-YEN
97.0
106.5
120.1
121.4
123.3
GPB-$
1.57
1.64
1.49
1.48
1.48
Euro-R
12.83
14.33
12.90
12.54
12.61
R-YEN
10.0
9.8
9.7
9.5
9.3
GBP-R
15.14
17.83
18.36
18.86
19.57
Three-month JIBAR
5.22
6.13
6.32
7.52
6.22
Prime
8.50
9.25
9.50
11.00
9.50
Long bond
7.95
7.87
8.46
8.39
8.01
5.8
6.1
4.7
6.1
5.4
GDP growth %
Current account as a % of GDP
Gold price (average per ounce)
Exchange rates (average)
Interest rates (end of period)
Inflation (CPI, average)
CPI
Source: Nedbank Group Economic Unit
While every care is taken to ensure the accuracy of the information and views contained in this document, no responsibility can be
based thereon.
Monthly Insights | 05 May 2015
Page 17 of 20
Nedbank Capital
Facts and forecasts (quarterly) of key economic variables
2015
2016
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Three-month JIBAR
6.11
6.12
6.17
6.32
6.82
6.97
7.62
7.52
Prime
9.25
9.25
9.25
9.50
10.00
10.25
11.00
11.00
Long bond (10 YR)
7.71
7.95
8.17
8.46
8.39
8.46
8.39
8.39
4.0
4.5
4.2
5.9
6.2
6.4
5.9
5.7
12.20
12.44
12.69
12.56
12.69
12.75
12.88
13.01
Euro-$
1.08
1.04
1.02
1.00
0.99
0.98
0.98
0.97
$-Yen
120.2
119.6
120.8
121.1
121.5
120.9
121.5
122.1
GBP-$
1.48
1.48
1.48
1.48
1.47
1.47
1.49
1.48
Euro-Rand
13.13
12.88
12.88
12.50
12.50
12.50
12.57
12.63
Rand-Yen
9.86
9.61
9.52
9.64
9.58
9.48
9.44
9.39
GBP-Rand
18.02
18.47
18.84
18.56
18.66
18.75
19.13
19.22
Dollar
1181
1193
1181
1204
1180
1204
1228
1216
Rand
14405
14840
14986
15133
14978
15354
15818
15816
Interest rates % (end of period)
Inflation % (end of period)
CPI (new)
Exchange rates (end of period)
$-R
Gold price (average per ounce)
Source: Nedbank Group Economic Unit
While every care is taken to ensure the accuracy of the information and views contained in this document, no responsibility can be
assumed for any action based thereon.
Monthly Insights | 05 May 2015
Page 18 of 20
Analyst Certification
Each research analyst principally responsible for the preparation and content of all or any identified portion of this research report ("Report") hereby certifies that, with respect to each company or
security or any identified portion of the Report with respect to a company or security that is discussed by the research analyst in this Report, all of the views expressed in this Report accurately reflect
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Views expressed in respect of a particular company or security in this Report may be different from, or inconsistent with, the observations and views of other research analysts due to the differences in
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Report.
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Monthly Insights | 05 May 2015
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Contacts
Money Market Business Banking sales desk
(011) 535 4006
Money Market Corporate sales desk
JHB (011) 535 4007; DBN (031) 327 3000; CTN (021) 413 9300
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(011) 535 4008
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(011) 535 4003
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JHB (011) 535 4002; DBN (031) 327 3000; CTN (021) 413 9300
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(011) 535 4005
Derivatives sales and structuring
(011) 535 4021
Monthly Insights | 05 May 2015
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