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Daily Dose

12 August 2020

Good morning,


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On The Wires...

  • Meet Kamala Harris, who may be the next US vice president
  • Google's search engine was hit with a massive glitch that disrupted search results for hours
  • UK job losses hit decade-high
  • SA achieves 75% recovery rate, KZN overtakes Western Cape slightly
  • Jewellery store robbed in Bryanston
  • Reinach eyes Springbok No 9 jersey with Pollard partnership at Montpellier

Two Cents Worth...

Currency Crackdown...

*We would like to thank Quinten Bertenshaw from ETM Analytics for the use of his currency comment.

In a swing of market sentiment, the ZAR managed to snap its current losing streak and trace back the last two days of losses. The local unit led emerging market currencies as sentiment was given a boost following Russian President Putin’s statement that authorities had given regulatory approval to a Russian-developed COVID-19 vaccine. Although the pace of the trials and approval thereof has sparked some controversy, markets viewed this rather as a potential for other vaccine productions to speed up as well. The result was general risk-on at play, haven currencies such as the Japanese Yen and Swiss Franc came under pressure, while the gold price was beaten into a 4% retreat. The ZAR took full advantage of this as it traded 1.5% stronger against the USD to close at 17.42/$.

South African manufacturing production data for June was released yesterday and came out better than expected with a 16.35% contraction y/y, whereas the consensus was for a 25.3% contraction. However, the recovery was not as strong as in the prior month which saw a 30.4% uptick in production, while June’s month-on-month increase came in at 16.8%. This did little to dampen market sentiment for the ZAR on the day but will definitely feed the view of a prolonged recovery for the economy and limit the potential for further ZAR appreciation in the coming months.

Limiting factors for a sustained economic recovery would be weak fundamentals and low business confidence which is set to be the case going forward until global demand dynamics recover. More insight on this will be gained through today’s release of the SACCI business confidence index for July, which will show the extent of the recovery in the business environment after confidence hit an all-time low in April. This will also be the first reading since April as reporting was halted during the nationwide lockdown. Although lockdown restrictions have eased, business activity is still subdued and will likely be subject to low growth until there is some sense of economic stability.

Additionally, on the local data card will be the retail sales growth print for June, with the expectation that sales are still constrained due to ongoing social distancing. A 4.9% contraction y/y has been pencilled in for retail sales, far better that May’s 12% contraction, however. Externally, there will be a host of data prints out of the UK including Q2 GDP growth, while US CPI data will provide an update on the inflation environment in the world’s largest economy.

For the day thus far, sentiment has turned 180 degrees once again and, after being the second largest gainer yesterday, the ZAR now sits as the second largest loser in early trade. Despite the risk-off sentiment, the gold price decline continues off its historical highs reached earlier this month, as the US Dollar comes to the fore once again as the reserve of choice.

 

On the radar...

  • All – Corona updates
  • All – US/ China tensions
  • US – Core Inflation Rate MoM & YoY
  • EU – Industrial Production MoM & YoY
  • SA – Retail Sales MoM & YoY
  • US – Inflation Rate MoM & YoY

Did you know?

There's a Coffee Shop in France where not saying "hello" and "please" makes your coffee more expensive.

 

Have a great day,

Keaton

 

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