Weekly market brief - 7 March 2019
Rand takes a knock
- On Thursday the ECB postponed the timing of its first post-crisis rate hike to 2020 at the earliest and launched a new round of cheap loans to banks.
- The US China trade war remains a cause for market volatility and has raised serious concerns about the impact on the global economy.
- Emerging markets remain under pressure from global growth concerns.
- The rand faces various risks, including the global trade tensions and slowing economic growth, with domestic concerns around SOE’s, the Moody’s credit ratings review at the end of March and elections on 8 May.
- The rand moved sharply weaker on Thursday, breaching various technical levels and looks set to break R14.50.
- PMI rose to 50.2 points in February from 49.6 in January, expanding for the for the first time in eight months.
- The local economy expanded 1.4% in the fourth quarter of 2018 following a revised 2.6% expansion in the third quarter.
- The business confidence index deteriorated in February, falling to 93.4 points from 95.1 in January.
- The current account deficit narrowed to 2.2% of GDP in the fourth quarter from a revised 3.7% in the third quarter.
- The National Energy Regulator of South Africa has approved electricity hikes of 9.41%, 8.1% and 5.2% for the next three financial years, far below Eskom’s application for double-digit tariff increases.
Interest Rate Outlook
- Electricity tariff increases have a meaningful impact on inflation, with a weighting of 3.8% in the consumer price index (CPI) for electricity prices. Today’s 9.4% increase in Eskom electricity tariffs for 2019 approved by Nersa is above the inflation rate and will place upwards pressure on CPI inflation in SA from July. (Source: Investec Bank. 15. Interest and Inflation rate note. 07.03.2019).
- According to the FRA curve, the market is still not pricing in rate hikes this year. We maintain the view of no rate hikes, at least for the first half of the year.
- The number of Americans who applied for unemployment benefits fell unexpectedly last week, indicating strong US labour market conditions despite signs that job growth was slowing.
- Despite the US government's preferential policy to reduce the trade deficit gap, it is confirmed that the deficit in 2018 has been the record high, driven by strong domestic demand amid tax rate cuts.
- The European Central Bank on Thursday postponed the first rate hike after the crisis to at least 2020 and announced a new round of long-term refinancing target operations (TLTRO) that will last from September 2019 to March 2021 of the year.
- The Eurozone CPI estimate for February rose to 1.5% y/y, from 1.4% achieved in January, in line with consensus. However, underlying inflationary pressures measured by core inflation, fell to 1% y/y, from 1.1% previously and expected.
- Euro producer prices rose a little more than expected in January, driven by energy, capital goods and intermediate goods.
- The UK PMI fell to 52 points, from 52.6 in January, but remains in expansion territory as a result of strong domestic demand.
- Gold prices fell to $1 280.70/oz earlier this week as the dollar and US treasury yields rose.
- The precious metal rose to $1 288/oz on Thursday as lacklustre appetite for riskier assets offered some support to the safe-haven metal.
- Silver fell to $15.00/oz on Wednesday, its lowest since 27 December.
- Copper prices rose to $6 498.50/t earlier this week after China unveiled economic stimulus measures, including tax cuts for the manufacturing industry, boosting the demand outlook.
- The premium of cash copper over the 3-month contract rose to $70/t, the highest since January 2015, reflecting shortages in the LME system.
- Nickel prices rose to a six-month peak of $13 765/t earlier this week as expectations of a fourth consecutive year of supply deficit were reinforced by signs of robust demand from stainless steel mills in China.
- Global nickel demand is estimated at about 2.4 million tonnes this year. Of that, about two thirds is destined for stainless steel mills, mostly in China.
- Brent fell to $64.93/bbl earlier this week as China cut its 2019 growth target, dimming the outlook for fuel demand.
- Brent rose to $66.44/bbl on Thursday amid ongoing OPEC-led supply cuts and US sanctions against exporters Venezuela and Iran, however, price gains were capped by record US crude output and rising commercial fuel inventories.
- US crude oil stockpiles rose much more than expected last week, with inventories up by 7.1 million barrels to 452.93 million barrels.