MONTHLY INSIGHTS CHART PACK€¦ · This report is personal to the recipient and any unauthorised use, ... The mining and manufacturing industries switched fortunes in Q3 relative

MONTHLY INSIGHTS | PAGE 1

MONTHLY INSIGHTS CHART PACK

December 2018

Reezwana Sumad [email protected]

Walter De Wet, CFA [email protected]

MONTHLY INSIGHTS | PAGE 2MONTHLY INSIGHTS | PAGE 2

TABLE OF CONTENTSDISCLAIMER

This report is personal to the recipient and any unauthorised use, redistribution, retransmission or reprinting of this report (whether by digital, mechanical or other means) is strictly prohibited.

The information furnished in this publication, which information may include opinions, estimates, indicative rates, terms, pricequotations and projections, reflects the judgment of the author(s) and the prevailing market conditions as at the date of this report, which judgment and conditions are subject to change without notice, modification or amendment. This publication does not necessarily reflect the opinion of Nedbank Limited (‘Nedbank’) or its ultimate holding companies or any direct or indirect subsidiary undertakings of such holding companies (its ‘Affiliates’). Information presented in this publication was obtained or derived from public sources that Nedbank believes are reliable but no representation or warranty, express or implied, is made as to its accuracy or completeness. Neither Nedbank nor its Affiliates (or their respective directors, employees, representatives and agents) accepts any responsibility or liability (whether in delict, contract or otherwise) for loss arising from the use of or reliance placed upon the material presented in this publication, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to Nedbank or its Affiliates.

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• Summary of views 3

• Global developments 4

• Monetary policy dynamics: Global 6

• South Africa’s real economy 8

• SA inflation trends 9

• Monetary policy dynamics: SA 10

• Credit risk comparison 11

• The SA bond market 12

• The rand and key risks 13

• Other markets 15

• Appendices:

• Calendar of event risks 16

• Upcoming economic data releases 17

• Nedbank Group forecasts 18

• Other SA charts 19


• After sounding increasingly hawkish since its September meeting, the US Fed has come to the realisation that it may need to reassess its policy tools, and its tightening strategy. While domestic macroeconomic data remain

upbeat, cracks have started to emerge in the form of a slowdown in business capex spending, tighter global financial conditions and rising geopolitical tensions. The Fed is also concerned that it may overshoot its targeted

neutral rate at a time when the effects of loose fiscal policy starts to fade in 2019.

• Locally, high frequency data prints for Q3 show a mixed but slightly positive outlook for growth in the quarter. The mining and manufacturing industries switched fortunes in Q3 relative to Q2 – manufacturing production

ended the quarter up 1.7% q/q, and is likely to contribute positively towards Q3 growth, after the 0.3% contraction in Q2. The manufacturing industry makes up 13% of GDP, and is likely to drive trade and transport activity

over the quarter. An inventory rebuild in the industry is likely to have driven growth in production. Inventories are therefore set to contribute positively towards Q3 GDE, after the substantial draw down in Q2. In contrast,

mining production declined by 2.2% q/q in Q3, after posting 4.9% growth in the Q2 GDP print. Mining production has come under pressure as a result of the recent weakness in global demand and production stoppages as a

result of strikes.

• In line with our expectations, the SARB raised the repo rate by 25bps to 6.75% (see our MPC Preview note of 16 November 2018). We had expected a dovish hike, and indeed the statement produced enough evidence to

warrant this dovishness, as well as the hike. Just as market consensus was split down the middle, so too was the MPC, with three members voting for a hike, while three members voted for a hold.

• The USDZAR has finally broken below the long term declining channel from 2016, after struggling to make a clean break since early August 2018. It is currently testing the one standard deviation level above the long run

average and is likely to break lower, heading towards R13.18/$. In the interim, the R13.60/$ mark remains a key rand resistance level.

• Higher and rising real interest rates may support investor risk sentiment and as a result remain supportive of the local unit over the near term, in the absence of external shocks. However, Nedbank maintains its view that the

rand will probably depreciate gradually over the medium term as a result of external risks.

Near-term local recovery paves away for an uncertain and volatile 2019

SUMMARY OF VIEWS

Disclaimer – Note that the above and ensuing analyses represent the analysts’ own view within Nedbank Corporate and Investment Banking (Nedbank CIB Markets Research) and not necessarily the Nedbank Group House view.

Current price/yield3-month 14,20

Year-end 14,00

12-month 14,00

Repo rate 6,75

3-month 7,45

Year-end 7,45

3-month 8,8

Year-end 8,8

3-month 9,4

Year-end 9,4

Source: Nedbank CIB M arkets Research

Our fair value range or “neutral zone” for the 10-year nominal bond yield lies between 8.0 - 8.5%.

We would be underweight on approach of 8.0% and overweight abve 8.5%.SAGBs

We expect the SARB will maintain a hawkish bias as a result of geopolitical risks and a vulnerable

rand. We forecast a further 25bps rate hike in the medium term, as the SARB actively tries to

achieve a 2% real rate

Target levels

From a technical perspective, we recommend keeping an eye on the USDZAR resistance level of

R13,18 and USDZAR support level of R14,20. However, we expect the rand to remain vulnerable to

global risk aversion over the medium term.

13,70USDZAR

Core views

7,16 (R208)

8,88 (R186)

9,8 (R2048)

https://www.nedbank.co.za/content/dam/nedbank-crp/reports/MonthyInsights/2018/SARB_MPC_Preview_181116.pdf


• While global inflation trends still appear mixed, upside price pressures seem

to be easing on the back of the recent fall in energy costs and lower

underlying inflationary pressures. In the US, core PCE fell to 1.8% y/y in

October, from 1,9% prior, in line with consensus. Headline CPI however,

remained elevated at 2.5% y/y as a result of higher services inflation and

transportation costs.

• In the Eurozone, CPI rose to 2.2% y/y October due to higher education

inflation in Italy, but the CPI estimate for November is 2% due to lower

energy costs. Demand remains healthy in the Eurozone and so PPI is still

quite elevated as a result of better imports and a weaker euro exchange

rate.

• The UK’s stubbornly high CPI fell to 2.4% y/y in October, while core CPI

remained unchanged at 1.9%. Due to a weak pound, uncertain Brexit trade

conditions, and higher interest rates, PPI remained elevated at 10% y/y in

October.

• While Japanese headline CPI rose by 20bps, to 1.4% y/y in October, its core

measure remained subdued at 0.4%. CPI in Japan is expected to fall further

as household consumption spending is still very weak, and energy costs have

come down drastically in the last month.

• In China, CPI remained sticky at 2.5% in the last two months, but PPI has

fallen in response to lower energy and commodity prices. This will

eventually filter through to headline CPI, which means that CPI may fall

further away from the PBOC target.

• EM CPI levels remain contained apart from Turkey. The recent oil price

slump will certainly aid EM inflation rates in the near term.

Inflation patterns mixed, slump in oil price may provide some near-term easing

GLOBAL DEVELOPMENTS

Table 1: Summary of economic and financial indicators

Source: Bloomberg, Nedbank CIB Markets Research

Chart 2: EM inflation rates contained (excluding Turkey) Chart 1: Global inflation trend mixed

Economic, f iscal

and monetary

indicatorsAvailable data

as at 30-Nov-

18 LAST PREV. LAST PREV. LAST PREV. LAST PREV. LAST PREV. LAST PREV. LAST PREV.

US 4,6 4,2 136 138 3,5 4,2 57,7 59,8 0,1 0,15 -3,8 -3,7 2,25 2,25

UK 2,2 3,3 -13 -10 0,6 0,4 51,1 53,6 0 1 -1,3 -1,68 0,75 0,75

Eurozone 0,8 2,2 -3,9 -2,7 0,2 0,4 51,5 52 0,9 1,1 -0,47 -0,77 0 0

Japan 3,5 2,2 42,9 43 -1,2 3 51,8 52,9 4,2 -2,5 -3,68 -3,42 -0,1 -0,1

Turkey -4,62 0,17 59,6 57,3 0,3 0,66 44,3 42,7 -2,68 6,3 -2,01 -1,63 24 24

China 8,6 9,2 119 119 6,5 6,7 50 50,2 5,9 5,8 -5,44 -5,3 4,35 4,35

Brazil 0,1 4 93,2 86,1 0,2 0,1 51,1 50,9 -2 1,6 -7,22 -7,34 6,5 6,5

Russia 1,9 2,2 68,3 71,3 1,3 1,9 51,3 50 3,7 2,1 -1,03 -1,72 7,5 7,5

India 4908 4891 47,8 46,1 8,2 7,7 53,1 52,2 4,5 4,7 -3,35 -3,53 6,5 6,5

Mexico 4,1 3,9 103 102 0,83 -0,1 49,7 51,3 1,78 0,27 -2,65 -2,58 8 7,75

South Africa 0,7 2,5 7 22 -0,7 -2,6 42,4 44,5 0,1 1,5 -4,17 -4,44 6,75 6,5

PMI

Manufact.

prod. y/y %

Budget bal.

(% of GDP)

Central bank

rate %

Retail sales

y/y %

Consumer

confidence

GDP growth

q/q ann.

-1

-0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

201

3/0

9/0

1

201

3/1

1/0

1

201

4/0

1/0

1

201

4/0

3/0

1

201

4/0

5/0

1

201

4/0

7/0

1

201

4/0

9/0

1

201

4/1

1/0

1

201

5/0

1/0

1

201

5/0

3/0

1

201

5/0

5/0

1

201

5/0

7/0

1

201

5/0

9/0

1

201

5/1

1/0

1

201

6/0

1/0

1

201

6/0

3/0

1

201

6/0

5/0

1

201

6/0

7/0

1

201

6/0

9/0

1

201

6/1

1/0

1

201

7/0

1/0

1

201

7/0

3/0

1

201

7/0

5/0

1

201

7/0

7/0

1

201

7/0

9/0

1

201

7/1

1/0

1

201

8/0

1/0

1

201

8/0

3/0

1

201

8/0

5/0

1

201

8/0

7/0

1

201

8/0

9/0

1

%

Global inflation rates

US Eurozone Japan China UK

0

5

10

15

20

25

30

201

3/0

9/0

1

201

3/1

1/0

1

201

4/0

1/0

1

201

4/0

3/0

1

201

4/0

5/0

1

201

4/0

7/0

1

201

4/0

9/0

1

201

4/1

1/0

1

201

5/0

1/0

1

201

5/0

3/0

1

201

5/0

5/0

1

201

5/0

7/0

1

201

5/0

9/0

1

201

5/1

1/0

1

201

6/0

1/0

1

201

6/0

3/0

1

201

6/0

5/0

1

201

6/0

7/0

1

201

6/0

9/0

1

201

6/1

1/0

1

201

7/0

1/0

1

201

7/0

3/0

1

201

7/0

5/0

1

201

7/0

7/0

1

201

7/0

9/0

1

201

7/1

1/0

1

201

8/0

1/0

1

201

8/0

3/0

1

201

8/0

5/0

1

201

8/0

7/0

1

201

8/0

9/0

1

%

EM inflation rates

Indonesia India Brazil Turkey Mexico South Africa


• While geopolitical tensions temporarily calmed in the past month as China

acceded to review its trade policies, and waivers were made on Iranian

sanctions, global trade activity did not recover. The Baltic Dry index has

continued to decline, reflecting reduced shipments, lower demand activity

and possibly subdued growth. Global PMIs are still reflecting a slowdown in

manufacturing activity within developed markets. EM PMIs were slightly

higher in October. $200 billion worth of Chinese imports to the US may still

have the 25% import tariff imposed on it in January 2019 – a key issue being

decided on by President Trump. The G20 meeting introduced some

negotiation between the two largest economies, however this remained

unresolved.

• US GDP growth eased in Q3, to 3.5% q/q, from 4.2% in Q2, driven by a

decline in net exports. However, Q4 growth is expected to strengthen as a

result of better consumer spending activity and exports. In the Eurozone,

retail sales growth slumped in September, along with industrial production,

the trade balance and consumer confidence. As a result, the manufacturing

PMI is expected to have declined in November, while confidence levels

remain subdued.

• The UK is battling uncertainty over Brexit, which terms are set to be voted

on on the 11 December 2018. Preliminary Q3 GDP growth showed a slight

improvement to 0.6% q/q in Q3, from 0.4% in Q2, propped up by both

government and private consumption. However, the BOE remains

concerned over the longer term trajectory as a result of the potential

negative consequences of a no-deal Brexit.

• Chinese economic data was mixed in October, with retail growth easing,

industrial production growth rising slightly, while its trade surplus continued

to widen as a result of healthy export activity. In Japan, household spending

contracted in September but could recover in Q4. Japanese GDP contracted

by 0.3% q/q in Q3, from 0.8% growth in Q2, due to adverse weather

conditions which limited industrial activity and halted exports. There is

growing consensus that Japanese economic activity may normalise in Q4

following the Q3 disappointment. EM economic activity improved in Q3,

following a stable dollar, better demand and manufacturing activity, and a

fall in the oil price. However the longer term outlook is highly dependent on

global growth rebounding.

Geopolitical tensions pause but downside risks still a threat

GLOBAL DEVELOPMENTS

Chart 3: Major PMIs are expansionary, but turning lower

Chart 4: Global manufacturing activity driven by DMs

Chart 5: EM PMIs are mixed, SA neutral

Source: Bloomberg, IMF, Nedbank CIB Markets Research

Chart 6: Global growth driven by China and other EMs over the next two years – IMF and Bloomberg

40

45

50

55

60

65

Major manufacturing PMIs

US Eurozone Japan China UK

48

49

50

51

52

53

54

55Manufacturing PMIs

EM PMI Global PMI

35

40

45

50

55

60EM manufacturing PMIs



• Despite further disappointments on the economic front, the ECB remains

committed to ending its QE programme this year, after halving its asset

purchases to €15 billion in October. The ECB seems unfazed because it is still

maintaining a loose monetary policy stance through reinvesting proceeds

from maturing bonds. However given the about-turn by the Fed, we will not

be surprised if the ECB decides to review its policy path.

• The Fed has started to rethink its hawkish policy stance due to concerns that

it may overshoot its targeted neutral rate. Market consensus is for one last

hike this year in December, however there is no consensus on what the 2019

dot plot will look like. We could see the Fed hiking twice in 2019, before it is

forced to pause as a result of disappointing economic data.

• While UK inflation has fallen recently, it remains above the BOE target. In

fact, the BOE forecasts inflation to remain above 2% over the next three

years, and so remains hawkish as a result. The market anticipates one hike

each in 2019 and 2020, however if inflationary pressures rise, then this may

be revised higher.

Fed tempers hawkishness, BOE and ECB remain on course

MONETARY POLICY DYNAMICS: GLOBAL

Chart 7: US inflation expectations are sticky above 2%

Chart 8: UK inflation remains elevated; expectations ease marginally in the near term

Chart 9: Eurozone swap markets more in tune with actual inflation

Chart 10: Policy rates across DMs set to rise over the medium to long term


1

1,2

1,4

1,6

1,8

2

2,2

2,4

2,6

2,8

3

2014/08/18 2015/08/18 2016/08/18 2017/08/18 2018/08/18

US inflation expectations

University of Michigan 5-10 year inflation expectationsUS 10y breakeven inflation rateUS 5y5y inflation swapTarget

1,5

2

2,5

3

3,5

4

2014/08/19 2015/08/19 2016/08/19 2017/08/19 2018/08/19

UK inflation expectations

UK 5y5y inflation swap UK 10y breakeven inflation rate Target

-1,5

-1

-0,5

0

0,5

1

1,5

2

2,5

2014/08/19 2015/08/19 2016/08/19 2017/08/19 2018/08/19

Europe inflation expectations

Europe 5y5y inflation swap Europe 10y breakeven inflation rate Target

-1

0

1

2

3

4

5

6

7

2000

/08

/17

2001

/08

/17

2002

/08

/17

2003

/08

/17

2004

/08

/17

2005

/08

/17

2006

/08

/17

2007

/08

/17

2008

/08

/17

2009

/08

/17

2010

/08

/17

2011

/08

/17

2012

/08

/17

2013

/08

/17

2014

/08

/17

2015

/08

/17

2016

/08

/17

2017

/08

/17

2018

/08

/17

%

Major central banks interest rates

Fed funds rate - upper band ECB main refinancing rate

BOE bank rate BOJ policy rate

Next MPC meeting

Probability of a

hike/cut/hold

US 2018/12/19 21:00:00 78,60%

UK 2018/12/20 14:00:00 99,30%

Eurozone 2018/12/13 14:45:00 94,10%

Japan 2018/12/20 98,70%

China

India 2018/12/05 11:00:00 84,50%

Mexico 2018/12/20 21:00:00 94,80%

South Africa 2019/01/17 16,00%

Updated 30-N o v-18


• After sounding increasingly hawkish since its September meeting, the US Fed

has come to the realisation that it may need to reassess its policy tools, and

its tightening strategy. While domestic macroeconomic data remain upbeat,

cracks have started to emerge in the form of a slowdown in business capex

spending, tighter global financial conditions and rising geopolitical tensions.

The Fed is also concerned that it may overshoot its targeted neutral rate at a

time when the effects of loose fiscal policy starts to fade in 2019. This would

also imply that CPI may peak and 2% and then start to decelerate We are

likely to see a downward revision to the Fed’s Dot-plot in early 2019 – the

Fed currently forecasts one last hike for this year, followed by three in 2019

(this may fall to two hikes in 2019, followed by none in 2020).

• The ECB left interest rates unchanged at 0% and remained committed to

ending its QE programme at the end of the year, whilst keeping interest

rates unchanged until 3Q19. The statement remained hawkish in nature,

highlighting that demand remains upbeat, supporting consumption, and

supported by rising wages. The ECB has halved its monthly QE purchases, to

€15 billion, until the end of the year, thereafter ending asset purchases, but

still reinvesting the proceeds of maturing bonds, in order to maintain

monetary accommodation. The ECB still believes that significant monetary

accommodation is still necessary for the continued and sustained

convergence of inflation to levels close to 2%.

• The BOE unanimously kept interest rates unchanged at 0.75% and

maintained its asset purchase programme but continued to sound

increasingly hawkish as policymakers outlined concern over Brexit scenarios

and rising wage and price pressures. The core focus of the BOE’s statement

was due to Brexit, with the BOE expecting a negotiated transition and any

deviation from that expectations may cause the BOE to react to any

disorderly outcome. Importantly, the conditioning path for the BOE’s bank

rate has risen marginally in 2019 and 2020, to 1% and 1.2% (up by 10bps in

both years). Growth estimates were marginally lower for 4Q19, while

inflation was assessed to end this year higher than previously forecast (2.5%

vs. 2.3% in August).

• Of the 57 most watched central banks, 24 have already raised interest rates

in the last six months, while one (Venezuela) has cut interest rates. Turkey

and Argentina has raised interest rates by 16% and 23% respectively.

GLOBAL DEVELOPMENTS

Chart 11: The Fed remains at the forefront of tightening

Chart 12: Global bond yields mixed as risk-off supports some DM bonds

Chart 13: EM monetary policy stance broadly loose, apart from Turkey Chart 14: EM bond yields rise amid risk-off


0

1

2

3

4

5

6

7

-0,5

0

0,5

1

1,5

2

2,5

Major policy rates

US Eurozone Japan UK China (RHS)

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

-0,5

0

0,5

1

1,5

2

2,5

3

3,5 Majors: 10y bond yields

US Euro Japan UK China (RHS)

0

5

10

15

20

25

30

EM policy rates


0

5

10

15

20

25 EM 10y bond yields


Policy rates: Upcoming Fed hike and an end to the ECB’s QE


• High frequency data prints for Q3 show a mixed but slightly positive outlook

for growth in the quarter. The mining and manufacturing industries switched

fortunes in Q3 relative to Q2 – manufacturing production ended the quarter

up 1.7% q/q, and is likely to contribute positively towards Q3 growth, after

the 0.3% contraction in Q2. The manufacturing industry makes up 13% of

GDP, and is likely to drive trade and transport activity over the quarter. An

inventory rebuild in the industry is likely to have driven growth in

production. Inventories are therefore set to contribute positively towards

Q3 GDE, after the substantial draw down in Q2. In contrast, mining

production declined by 2.2% q/q in Q3, after posting 4.9% growth in the Q2

GDP print. Mining production has come under pressure as a result of the

recent weakness in global demand and production stoppages as a result of

strikes.

• On the consumption side, households returned to the malls in Q3, with

retail sales growing by 1.5% q/q in Q3, from -0.4% in Q2. This is the single

biggest component which may drive growth in Q3, as household final

consumption expenditure makes up 59% of GDE. Higher wage settlements,

still low inflation, and the interest rate cut in March would have supported

spending in the quarter.

• The medium term outlook remains concerning as a result of falling

disposable income growth, higher unemployment levels, interest rates and

inflation, and distressed lending seen in credit extended to households. New

vehicles sales have contracted in Q3, after a positive Q2, and this may limit

the incline in consumption activity somewhat. Household consumption is

likely to remain positive in Q4 as well, due to seasonal influences. Net

exports are likely to have contributed negatively towards Q3 GDP as exports

rose by 12.2% over the quarter while imports surged 18.2%.

• The Nedbank Group Economic Unit projects a growth rate of 0.6% for 2018

and 1.6% for 2019, but risks are still tilted to the downside. Investment

pledges of R290 billion that was made in October will only boost growth if

these are indeed realised.

Medium term outlook for growth remains clouded by policy uncertainty

SOUTH AFRICA’S REAL ECONOMY

Chart 15: SA confidence leads investment growth Chart 16: SARB’s leading index remains positive

Chart 17: SA economy needs to reduce dependence on government

Source: Bloomberg, Stats SA, Nedbank CIB Markets Research

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

06-2

008

12-2

008

06-2

009

12-2

009

06-2

010

12-2

010

06-2

011

12-2

011

06-2

012

12-2

012

06-2

013

12-2

013

06-2

014

12-2

014

06-2

015

12-2

015

06-2

016

12-2

016

06-2

017

12-2

017

06-2

018

12-2

018

0

10

20

30

40

50

60

%

Ind

ex

SA investment vs. confidence

BER Business confidence Gross fixed capital formation (y/y %, 2qtr lag)

-20

-15

-10

-5

0

5

10

15

20

25

-8

-6

-4

-2

0

2

4

6

8

10

09-2

000

07-2

001

05-2

002

03-2

003

01-2

004

11-2

004

09-2

005

07-2

006

05-2

007

03-2

008

01-2

009

11-2

009

09-2

010

07-2

011

05-2

012

03-2

013

01-2

014

11-2

014

09-2

015

07-2

016

05-2

017

03-2

018

%%

SA leading index and growth

SA GDP q/q% SA leading index y/y % (RHS)

2% 4% 2% 1% 2% 4% 3% 1% 2% 4% 2% 1% 2% 4% 2% 1% 2% 4% 3% 1% 2% 4%4%4%

4% 3% 4%4% 4% 3% 4% 4% 4% 3% 4% 4% 4% 3% 4% 4% 4% 3% 4% 4%4%

4%4% 4% 4%

4%4%

4% 4%4%

4% 4% 4%4% 4% 4% 4%

4%4% 4% 4%

4%6%

6%6%

6% 6%6%

6%6%

6%6%

6% 6% 6%6%

6%6%

6%6%

6%6%

6%6%

9%9% 10%

9% 8%8% 9%

9% 8%8%

8% 8% 7%8% 8% 9% 8%

7% 9%8% 7%

7%

10%10% 10%

11% 10%10% 10%

11% 10%10% 10% 11% 10%

10% 10% 10% 10% 10% 10%10% 10%

9%

13%12% 13%

13% 13%13% 13%

14% 13%13% 14% 14% 13%

13% 14% 13% 13% 13% 13% 14% 13% 13%

15% 14% 14% 16% 15%14% 14% 16% 15% 14% 15% 16% 15%

14% 14% 16% 15% 14% 15% 16% 15% 15%

17% 16% 17% 17% 17% 17% 17% 17% 17% 17% 18% 18% 18% 17% 18% 18% 18% 18% 18% 18% 18% 18%

21% 20% 20% 20% 21% 19% 20% 20% 21% 20% 20% 20% 21% 20% 20% 20% 21% 20% 20% 20% 21% 20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013- Q1

2013- Q2

2013- Q3

2013- Q4

2014- Q1

2014- Q2

2014- Q3

2014- Q4

2015- Q1

2015- Q2

2015- Q3

2015- Q4

2016- Q1

2016- Q2

2016- Q3

2016- Q4

2017- Q1

2017- Q2

2017- Q3

2017- Q4

2018- Q1

2018- Q2

GDP breakdown by Sector

Agriculture, forestry and fishing Electricity, gas and water Construction

Personal services Mining and quarrying Transport, storage and communication

Manufacturing Trade, catering and accommodation General government services

Finance, real estate and business services

63% 59% 60% 61% 62% 59% 59% 60% 60% 59% 59% 61% 60% 58% 59% 60% 60% 58% 58% 60% 61% 59%

21% 20% 21%20%

22% 20% 21%20%

21% 20% 21% 20% 22% 20% 21% 20% 22% 21% 21% 20% 22% 21%

20% 20% 21%21%

21% 20% 21% 20% 21% 20% 21% 20% 20% 19% 19% 19% 20% 19% 19% 18% 19% 18%

-1%

3% 2%

-1% -3%

3% 1%

0% 0%

1% 1% 0%

-1%

0% 1%

-1% -2%

1% 0%

0% -2%

1%

-3% -2% -4% -1%-3%

-2% -2%

0%

-2%

0%

-2% -2% -1%

2% 0% 1% 1% 1% 2% 2%

-1%

1%

-2 0%

0%

20%

40%

60%

80%

100%

2013- Q1

2013- Q2

2013- Q3

2013- Q4

2014- Q1

2014- Q2

2014- Q3

2014- Q4

2015- Q1

2015- Q2

2015- Q3

2015- Q4

2016- Q1

2016- Q2

2016- Q3

2016- Q4

2017- Q1

2017- Q2

2017- Q3

2017- Q4

2018- Q1

2018- Q2

GDP breakdown by expenditure

Final consumption expenditure by households Final consumption expenditure by general governmentGross fixed capital formation Change in inventoriesNet exports

Chart 18: Spending is a key driver of economic activity


• SA CPI rose marginally in October as a result of the sharp increase in

transport inflation, but the upside was contained by lower food costs. CPI

rose to 5.1% y/y, which was below market consensus of 5.2%. CPI has

surprised to the downside relative to consensus in seven out of the past 10

months, while CPI has consistently been below the SARBs estimates for the

entire year thus far and is likely to come in below its estimate of 5.3% in Q4

as well.

• CPI was driven higher in October as a result of the R1/litre petrol price hike,

which saw transport inflation surging to 22.8% y/y (prev. 18.5%). Food and

NAB inflation actually eased in October, driven by fruit, meat and breads

and cereals. In October we had components of miscellaneous goods and

services being surveyed, and as a result eased services inflation and limited

the increase in headline CPI. Other disinflationary drivers were prices at

restaurants and healthcare.

• A key surprise was the fact that Core inflation remained unchanged at 4.2%

y/y, still reflecting very benign underlying inflationary pressures, subdued

demand, and limited pass through from the rand. Goods price inflation rose

by 30bps in October, to 5.1% y/y, services inflation declined by 10bps, to

5.1% y/y, this dynamic also reflective of subdued demand pressures in the

economy. Administered price inflation was led higher as a result of the sharp

increase in petrol costs in October. This is expected to ease in November and

December, helping headline inflation lower as well.

• We have continued to contend that CPI is likely to surprise to the downside

since the start of the year, and it has. While we currently project a gradual

uptick in headline CPI and core in coming months, we still believe risks

relative to our forecasts and to the SARB’s, in the absence of any demand

shock or exogenous shock, are tilted to the downside. We currently project

average CPI for 2018, 2019 and 2020 at 4.6%, 5.4% and 5.2% respectively.

CPI continues to surprise the market (and the SARB) to the downside

SA INFLATION TRENDS

Table 2: Nedbank CIB inflation estimates


Chart 21: Food prices remain disinflationary, but could rise in coming months Chart 20: Breakeven inflation still above 4.5%

Chart 19: Nedbank CIB inflation estimates relative to consensus

Average CPI Core Food Oil USDZARElectricity

2017A 5,3 4,8 7,0 55,7 13,3 4,8

2018F 4,6 4,3 3,4 73,3 13,2 5,2

2019F 5,4 4,6 6,7 72,9 14,2 11,2

2020F 5,2 4,6 6,3 71,0 14,1 12,0

Q1:18A 4,1 4,1 4,1 68,4 11,8 2,2

Q2:18A 4,5 4,4 3,3 77,4 13,0 3,1

Q3:18F 5,0 4,2 3,1 78,1 14,0 7,8

Q4:18F 5,0 4,3 3,3 69,2 14,1 7,7

Q1:19F 5,2 4,5 4,9 73,1 14,3 7,7

Q2:19F 5,4 4,6 6,9 73,1 14,3 12,4

Q3:19F 5,5 4,6 7,8 72,6 14,0 12,4

Q4:19F 5,5 4,6 7,4 72,4 14,0 12,4

Q1:20F 5,4 4,7 6,6 71,9 13,9 12,4

Q2:20F 5,2 4,6 6,2 71,3 14,0 11,8

Q3:20F 5,2 4,6 6,1 70,7 14,2 11,8

Q4:20F 5,2 4,6 6,3 70,1 14,4 11,8

N edbank C IB M arkets R esearch est imates

4

4,5

5

5,5

6

6,5

7

7,5

8

201

3/1

1/0

1

201

4/0

2/0

1

201

4/0

5/0

1

201

4/0

8/0

1

201

4/1

1/0

1

201

5/0

2/0

1

201

5/0

5/0

1

201

5/0

8/0

1

201

5/1

1/0

1

201

6/0

2/0

1

201

6/0

5/0

1

201

6/0

8/0

1

201

6/1

1/0

1

201

7/0

2/0

1

201

7/0

5/0

1

201

7/0

8/0

1

201

7/1

1/0

1

201

8/0

2/0

1

201

8/0

5/0

1

201

8/0

8/0

1

201

8/1

1/0

1

%

SA 5y breakeven inflation rate

SA 5y Breakeven inflation 3m moving average

320

340

360

380

400

420

440

460

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Ind

ex

ZAR

/MT

SA White Maize (LHS) CRB Food Index (RHS)

4,1

4,5

5,0 5,0

5,2

5,45,5

5,55,4

5,2 5,2 5,2

4,1

4,5

55,1

5,65,5 5,5

5,1 5,15,2

5,35,4

3,0

3,5

4,0

4,5

5,0

5,5

6,0

Q1:18A Q2:18A Q3:18F Q4:18F Q1:19F Q2:19F Q3:19F Q4:19F Q1:20F Q2:20F Q3:20F Q4:20F

SA CPI forecasts

Nedbank CIB Markets Research estimates Bloomberg consensus


• In line with our expectations, the SARB raised the repo rate by 25bps to

6.75% (see our MPC Preview note of 16 November 2018). We had expected

a dovish hike, and indeed the statement produced enough evidence to

warrant this dovishness, as well as the hike. Just as market consensus was

split down the middle, so too was the MPC, with three members voting for a

hike, while three members voted for a hold. Ultimately, the unofficial

Quarterly Projection Model (QPM) model, dubbed the ‘seventh MPC

member’, suggested the eventual hike (see our MPC Review note of 22

November 2018). However, the decision was based on risks to the inflation

outlook in the long-run, rather than actually projecting a 6% CPI breach, as

the SARB’s inflation forecast was reduced by up to 40bps, explained by the

wider negative output gap. This despite most other inputs rising (weaker

USDZAR forecast, higher oil and electricity prices).

• In our view, it is clear that the MPC has become more risk averse, stressing

that upside risks from a shock emanating from tighter global financial

conditions, financial market volatility and a change in investor sentiment

towards EMs may change the rand’s fortunes. We therefore believe that the

SARB may hike by a further 25bps in the current cycle, as a measure to

guard against exogenous risks that are keeping inflation expectations

elevated.

• The SARB is also cognisant of the importance of achieving a real interest rate

that is close to its neutral level in order to maintain the value of the rand.

The neutral real interest rate is the level at which inflation is stable close to

the SARB target, while the economy is growing at its potential. The SARB’s

neutral real interest rate is currently at 1,9%, implying that monetary policy

is till quite accommodative with an inflation rate at 5,1%.

• We believe that the SARB may follow its QPM path more closely in coming

months, but that the QPM is likely to project fewer hikes (than the current 3

hikes of 25bps each) as inflation continues to surprise to the downside.

SARB now in risk-management mode as it tries to anchor expectations

MONETARY POLICY DYNAMICS: SA

Chart 22: We expect CPI inflation to remain contained below 6% at least until 2020

Chart 23: SARB revises 2018 growth estimate sharply lower

Chart 24: SARB’s inflation forecasts are well below its 2016 and 2017 estimates

Chart 25: Core inflation estimates sharply higher,despite lack of demand-pull inflation

Source: Bloomberg, SARB, Nedbank CIB Markets Research

4,1

4,5

5,0 5,05,2

5,45,5 5,5 5,4

5,2 5,2 5,2

4,1

4,5

5 5,1

5,6 5,5 5,5

5,1 5,1 5,2 5,3 5,4

3,0

3,5

4,0

4,5

5,0

5,5

6,0

6,5

Q1:18F Q2:18F Q3:18F Q4:18F Q1:19F Q2:19F Q3:19F Q4:19F Q1:20F Q2:20F Q3:20F Q4:20F

SA CPI forecasts

Nedbank CIB Markets Research estimates

Bloomberg consensus

SARB - Sep 2018

4

4,5

5

5,5

6

6,5

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

2016 2017 2018

SARB MPC Meetings

SARB core-CPI forecasts - evolution

2016 2017 2018 2019 2020 Actual

4,5

5

5,5

6

6,5

7

7,5

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

2016 2017 2018

SARB MPC Meetings

SARB CPI forecasts - evolution 2016

2017

2018

2019

2020

0

0,5

1

1,5

2

2,5

3

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

MA

Y

JUL

SEP

NO

V

2016 2017 2018

SARB MPC Meetings

SARB GDP forecasts - evolution

2016 2017 2018 2019 2020

https://www.nedbank.co.za/content/dam/nedbank-crp/reports/MonthyInsights/2018/SARB_MPC_Preview_181116.pdf

https://www.nedbank.co.za/content/dam/nedbank-crp/reports/MonthyInsights/2018/SARB_181122.pdf


• Moody’s has failed to provide a credit rating review/update before the

MTBPS, with Treasury officials indicating that the Moody’s update will take

place after the MTBPS. This has not happened. However, Moody’s will need

to stick to its release calendar as per the EU regulation, with any deviations

only allowed in the case of material or sudden changes in the Sovereign’s

fundamentals. At this stage, it is uncertain whether Moody’s will provide an

update before year-end, or wait for its scheduled date on 26 April 2019.

• S&P kept the Sovereign’s credit rating and outlook unchanged, but warned

of increasing risks from a low growth outlook, high contingent liabilities,

fragile SOE’s, and a deterioration in SA’s fiscal prospects and the debt

burden. S&P and Fitch both rate SA in junk status. Moody’s is the only rating

agency maintaining a rating above investment grade. S&P has indicated that

if economic growth rises, then this may be a key reason to upgrade SA’s

credit rating. Given the efforts to attract investment, root out corruption,

and create jobs, this may result in improved economic activity if it does

materialise.

• A concern to us and to ratings agencies, is the land reform policy and

whether the Constitution will be amended to allow for expropriation

without compensation. Ratings agencies will be looking at how, if any, these

changes are calibrated to still protect property rights, while allowing for

expropriation without compensation (EWC) where necessary. Moody’s is of

the opinion that this will be a longer term development and will gain pace

after the national elections in 2019. Any indications that SA’s rule of law is

compromised will result in a ratings downgrade.

Credit rating agencies seem unfazed by poor growth outlook and fiscus; Moody’s eerily quiet

CREDIT RISK COMPARISON

Table 3: A summary of SA’s credit ratings

Source: Bloomberg, Credit rating agencies, Nedbank CIB Markets Research

Chart 27: However, SA’s credit risk should ease Chart 26: SA is among the high-risk EMs

Moody's S&P Fitch <SA Credit rating>

Long-term Short-term Long-term Short-term Long-term Short-term

Aaa P-1 AAA A-1+ AAA F1+ Prime

Aa1 AA+ AA+ High grade

Aa2 AA AAAa3 AA- AA-A1 A+ A-1 A+ F1 Upper medium grade

A2 A AA3 P-2 A- A-2 A- F2

Baa1 BBB+ BBB+ Lower medium grade

Baa2 P-3 BBB A-3 BBB F3Baa3 (stable)

FC+LCBBB- BBB-

Ba1 BB+ (stable) LC BBB+ (stable)

FC+LCB Non-investment grade

Ba2 BB (stable) FC BB speculative

Ba3 BB- BB-

B1 B+ B+

B2 B B

B3 B- B-

Not prime

Source: F it ch, S&P rat ings, M oody's, N edbank

Highly speculative

Brazil

Chile China

Colombia Costa Rica

Croatia

Greece

Hungary India

Indonesia Mexico

Panama Peru Philippines

Russia

South Africa

Thailand

Turkey

Vietnam

0

50

100

150

200

250

300

350

400

450

A+

(po

siti

ve)

A+

(sta

ble

)

A+

(ne

gati

ve)

A (

po

siti

ve)

A (

stab

le)

A (

neg

ativ

e)

A-

(po

siti

ve)

A-

(sta

ble

)

A-

(neg

ativ

e)

BB

B+

(po

siti

ve)

BB

B+

(sta

ble

)

BB

B+

(ne

gat

ive

)

BB

B (

po

sitv

e)

BB

B (

stab

le)

BB

B (

neg

ativ

e)

BB

B-

(po

siti

ve)

BB

B-

(sta

ble

)

BB

B-

(neg

ativ

e)

BB

+ (

po

siti

ve)

BB

+ (

sta

ble

)

BB

+ (

ne

gati

ve

)

BB

(p

osi

tve

)

BB

(st

ab

le)

BB

(n

eg

ativ

e)

BB

- (p

osi

tive

)

BB

- (s

tab

le)

BB

- (n

ega

tive

)

B+

(p

osi

tiv

e)

B+

(st

able

)

B+

(n

ega

tiv

e)

B (

po

siti

ve)

bp

s

EM 5y CDS spreads and credit rating (S&P L/T FC rating)High risk

Low risk

BRAZIL

CHILECHINA

COLOMBIA

COSTA RICA

CROATIA

GREECE

HUNGARYINDIA

INDONESIAMEXICO

PANAMAPERU PHILIPPINES

RUSSIA

SA

THAILAND

TURKEY

VIETNAMAVERAGE

y = 7,8156e0,0645x

0

50

100

150

200

250

300

350

400

450

30 35 40 45 50 55 60 65

bp

s

EIU country risk score

Country risk vs 5Y CDS spreadHigh risk

Low risk


• The SAGB yield curve has visibly flattened over the past month, despite a

disappointing MTBPS and a rise in weekly bond issuance. The global risk

sentiment improved as a result of a few factors – the tension between the

US and China over trade wars has momentarily cooled, while the Fed

signalled uncertainty over its rate hike trajectory. A slump in equity market

performances also prompted demand for bonds as an alternative.

• However the short-end yields have continued to rally in the last three

months as the market increasingly prices in a switch auction before year-

end. At its current yield, the R207 remains well below fair value levels that

are closer to 7.40%.

• While we remain constructive on nominal bonds and overweight relative to

a benchmark, we remain selective with our exposure between the belly and

long end of the yield curve (see our Portfolio update of 13 November 2018).

On a fair value basis, we still believe that the yield curve can flatten further,

in the absence of external headwinds in the near term.

• Last month we argued that the FRA curve is likely to flatten in the absence of

no imminent CPI breach of 6%. The FRA curve has indeed flattened sharply,

in line with nominal yields and core rates. A less-hawkish SARB resulted in

the FRA curve now pricing in just two hikes of 25bps over the next two years

from almost four hikes priced in October. At current levels we do believe the

FRA curve is fair, as we do anticipate the QPM to evolve to project two hikes

over the medium term as oppose to the current three hikes projected. We

still anticipate one last hike of 25bps materialising in the current cycle as the

SARB will be torn between the very low growth outlook, inflation surprising

to the downside, while external risks remain uncertain.

Risk-on environment supports SA yields, FRA curve

SA’S BOND MARKET

Chart 28: FRA curve prices in almost 100bps of hikes over the next two years Chart 29: Risk-off dampens SA bond yields

Chart 30: Short-end portion of the curve steepens sharply

Chart 31: Foreign investors have lightened up on SAGBs, now hold less than 46%

Source: Bloomberg, IIF, Nedbank CIB Markets Research

8%24% 28%

44% 52%72% 76%

96% 100%

132%

156%

184%

208%

0%

50%

100%

150%

200%

250%

300%

350%

400%

1X4 2X5 3X6 4X7 5X8 6X9 7X10 8X11 9X12 12X15 15X18 18X21 21X24

Pro

bab

ility

FRA probabilities of a 25bps move by the SARB

Current Last meeting Sep-18 meeting

-70

-60

-50

-40

-30

-20

-10

0

R204

(2018)

R207

(2020)

R208

(2021)

R2023

(2023)

R186

(2026)

R2020

(2030)

R213

(2031)

R2032

(2032)

R2035

(2035)

R209

(2036)

R2037

(2037)

R2040

(2040)

R214

(2041)

R2044

(2044)

R2048

(2048)

bp

s

SA yield curve: 1-month change (bps)

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2

2013/08/19 2014/08/19 2015/08/19 2016/08/19 2017/08/19 2018/08/19

Short end

186/208 5y average -1 std dev +1 std dev

39.00%

41.00%

43.00%

45.00%

47.00%

49.00%

51.00%

53.00%

Dec

-15

Feb

-16

Ap

r-16

Jun

-16

Au

g-16

Oct

-16

Dec

-16

Feb

-17

Ap

r-17

Jun

-17

Au

g-17

Oct

-17

Dec

-17

Feb

-18

Ap

r-18

Jun

-18

Au

g-18

Oct

-18

Foreign holdings of SA fixed rate bonds

https://www.nedbank.co.za/content/dam/nedbank-crp/reports/Walter-FixedIncome/PortfolioView_181113.pdf


• Risk sentiment improved in November, which was further aided by the local

SARB interest rate hike, and as a result, we saw the USDZAR strengthen by

7.6%, the EURZAR by 7%, and the GBPZAR by 7.3% through the month. This

was in the face of a very volatile but strong dollar. The USDZAR is still 10.2%

weaker for the YTD. While the NEER has appreciated by 6.7% in November,

it is still 5.6% weaker for the YTD. The ZAR heat map continues to signal a

recovery in December, and this may narrow the rand’s YTD slump further.

• The USDZAR has finally broken below the long term declining channel from

2016, after struggling to make a clean break since early August 2018. It is

currently testing the one standard deviation level above the long run

average and is likely to break lower, heading towards R13.18/$. In the

interim, the R13.60/$ mark remains a key rand resistance level.

• Higher and rising real interest rates may support investor risk sentiment and

as a result remain supportive of the local unit over the near term, in the

absence of external shocks. However, Nedbank maintains its view that the

rand will probably depreciate gradually over the medium term as a result of

external risks.

USDZAR aided by risk sentiment and SARB rate hike in November

THE RAND AND KEY RISKS

Chart 32: ZAR REER falls below fair value Chart 33: ZAR breaks back sustainably back within channel

Chart 34: Oil price suggests that the rand is too weak

Chart 35: Heat map suggests that the rand may recover towards year-end


60

65

70

75

80

85

90

95

100

105

110

199

8/0

9/0

1

199

9/0

6/0

1

200

0/0

3/0

1

200

0/1

2/0

1

200

1/0

9/0

1

200

2/0

6/0

1

200

3/0

3/0

1

200

3/1

2/0

1

200

4/0

9/0

1

200

5/0

6/0

1

200

6/0

3/0

1

200

6/1

2/0

1

200

7/0

9/0

1

200

8/0

6/0

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REER Average 1 stddev

Weaker ZAR

Stronger ZAR

y = -0,0619x + 16,878

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25 35 45 55 65 75 85 95

USD

ZAR

Oil (USD/bbl.)

USDZAR vs. oil

Heat map: Long- t erm mont hly t rend

J F M A M J J A S O N D

USDZAR

GBPZAR

EURZAR

Red= ZAR weakn ess


• The USDZAR has gained more than 7% in November and is the best

performing currency in the world. However EM FX did not fare too badly as

well, dominating the top 10 best performing currencies. The USDZAR was

followed by the Indonesian rupiah, the Turkish lira and the Indian rupee,

while commodity currencies like the New Zealand dollar, Chilean Peso and

Australian dollar followed close behind.

• The JP Morgan EM FX index gained 1.3%. the reason for the subdued pace of

strength in the index was due to other EM FX performing equally bad – the

Brazilian real, Argentine peso, Russian ruble and Mexican peso were

amongst the worst performing currencies in the world, weighing on the EM

FX index and limiting the upside from positive risk sentiment in the month.

• Hence the USDZAR remains an outperformer relative to its peers. Foreign

sentiment improved enough to warrant inflows (R3 bn) into the local bond

market in November, while large outflows from equities were reminiscent of

the global trend. These bond market inflows helped buoy the currency in

November, and may possibly do so into December as well.

• The IIF however, believes that currency weakness will continue to be a

challenge for EMs as risk appetite ebbs. The rand is likely to remain

vulnerable in 2019 as global financial conditions tighten further, hence we

forecast gradual weakness for the USDZAR toward R14.20 over the next

three months.

Rand leads global FX scorecard in November

THE RAND AND KEY RISKS

Chart 36: The rand now underperforms relative to the EM trend

Chart 37: ZAR fairly stable against commodity currencies

Chart 38: Decline in global risk appetite may continue to weigh on EM FX - IIF

Chart 39: Foreign capital flows are an extension of ZAR weakness

Source: Bloomberg, IIF, Nedbank CIB Markets Research

60

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1008

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2013/01/01 2014/01/01 2015/01/01 2016/01/01 2017/01/01 2018/01/01

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ZAR

USDZAR vs EM FX

USDZAR EM FX - inverted (RHS)

Weaker EM FX

Stronger EM FX

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2013/01/01 2014/01/01 2015/01/01 2016/01/01 2017/01/01 2018/01/01

ZAR

ZAR vs Commodity FX

AUDZAR CADZAR

Weaker ZAR

Stronger ZAR

(100 000)

(80 000)

(60 000)

(40 000)

(20 000)

-

20 000

40 000

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2017

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Foreign capital flows: cumulative since 2017 (Rm)

Cumulative bonds Cumulative equities


• As the US waivered eight countries from participating in its sanctions on

Iran, and global demand has eased, the consequent supply glut has resulted

in a sharp fall in the Brent crude price in the past month. OPEC meets this

week to decide on its supply strategy going into 2019 and is likely to debate

production cuts of up to 1 million barrels/day. Should there be no consensus

on production cuts, then the oil price will likely remain at current low levels.

However, if OPEC decides to mop up excess supplies, then this may be

supportive of the oil price over the medium term. Nonetheless, SA is the

second-largest importer of oil in the world (as a % of GDP) and is likely to

benefit from the recent slump in fuel costs. Whether or not this will be

sustained is yet to be seen.

• World equity indices remain under pressure, fuelled by global growth

concerns, tighter financial conditions and trade uncertainty. In dollar-terms,

the UK’s FTSE is the worst performing DM equity index, which is down 17.5%

for the YTD. This is followed by the Eurostoxx, which has lost 14% YTD. If

global growth does slow down sharply in 2019, this may result in

disappointing corporate earnings and a further slide in benchmark equity

indices. This may be further fuelled by tighter financial conditions and higher

interest rates in the US, that is still not a foregone conclusion. The IMF and

the World Bank have indicated that it does expect global growth to slow

gradually over the next two years.

Brent sharply lower as supply glut concerns persist; equity market rout deepens

OTHER MARKETS

Chart 40: ZAR oil price slumps 36% since October peak

Chart 41:US crude stockpiles continue to rise, placing upward pressure on global supplies

Chart 42: Global risk-off dampens global equity indices

Chart 43: Equity indices sharply lower; SA equities under pressure from foreign selling


0,9

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20

17

= 1

00

SA Top 40 Index vs benchmarks

SA MSCI EM MSCI World

0,8

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1,1

1,2

1,3

1,4

1,5

Jan

20

17

= 1

00

SA vs Major equity indices

SA Australia Canada US UK

Eurozone Japan China MSCI EM MSCI World


• The following is a list of planned local and

global events as well as dates of

significance. This is a non-exhaustive list,

which obviously excludes unscheduled one-

off events and unplanned meetings such as

Cabinet changes, court cases, leadership

changes, other political developments and

any sort of Constitutional changes/reform.

• Example of notable events in 2019, with

undetermined dates:

• ANC NEC Lekgotla

• 2019 SA General Elections

• 2019 SA Sovereign rating review dates

• Brexit dates

Calendar of

event risks

APPENDICES

*IndicativeSource: Various media sources, Bloomberg

January February March14 Jan – US earnings season*17 Jan – SARB MPC24 Jan – ECB meeting22-25 Jan – WEF meeting in Davos-Klosters30 Jan – US FOMC meetingJan – President Trump mull tariffs on Chinese goods

14 Feb – SA State of the Nation address (SONA2019)*16 Feb – Nigerian general election20 Feb – SA Budget Speech*

07 Mar – ECB meeting17 Mar – BER 1Q Business confidence17 Mar – SA 4Q18 GDP20 Mar – US FOMC meeting28 Mar – SARB MPC29 Mar – Brexit commencement date (transition period until 31 Dec. 2020)*31 Mar – Turkish local elections

April May June04 Apr – NATO meeting06 Apr – BER 1Q Consumer confidence10 Apr – ECB meeting14 Apr – US earnings season*17 Apr – Indonesian general elections12-24 Apr – Spring Meetings of the World Bank & IMF26 April – Moody’s review of SA credit rating*Apr/May – Indian general elections

01 May – US FOMC meeting 02 May – UK local elections06 May – Term of SA’s 26th Parliament ends (election must be held within 90-days of this date)13 May – Philippine general elections17 May – S&P review SA credit rating*17 May – Fitch review of SA credit rating*23 May – SARB MPCLate May – EU Parliament elections

06 Jun – ECB meeting15 Jun – SA 1Q19 GDP16 Jun – BER 2Q Business confidence19 Jun – US FOMC meetingMid-2019 – UN Security Council election

July August September05 Jul – BER 2Q Consumer confidence14 Jul – US earnings season*18 Jul – SARB MPC25 Jul – ECB meeting31 Jul – US FOMC meetingJul – Japan Legislative (Upper house) elections

04 Aug – South Africa - Last possible day to hold general electionAug – Fed’s Jackson Hole symposium*

08 Sep – Russian elections*12 Sep – ECB meeting16 Sep – BER 3Q Business confidence16 Sep – SA 2Q19 GDP18 Sep – US FOMC meeting 19 Sep – SARB MPC

October November December03 Oct – BER 3Q Consumer confidence14 Oct – US earnings season*15 Oct – Mozambique general elections18-20 Oct – IMF Annual Meetings21 Oct – Canadian federal election23 Oct – SA MTBPS Speech*24 Oct – ECB meeting25 Oct – Moody’s review of SA credit rating*27 Oct – Argentina National elections30 Oct – US FOMC meeting31 Oct – ECB Chair Draghi’s term endsOct – Botswana, Greece, Portugal elections

01 Nov – European Commission Presidential Succession05 Nov – US mayoral/legislative elections21 Nov – SARB MPC22 Nov – S&P review of SA credit rating*22 Nov – Fitch review of SA credit rating*Nov – Namibia, Australia, Israel, Poland elections

11 Dec – US FOMC meeting 12 Dec – ECB meeting16 Dec – BER 4Q Consumer confidence16 Dec – SA 3Q19 GDP17 Dec – BER 4Q Business confidenceDec – Tunisia, Mauritius, Croatia elections


Upcoming economic data releases

APPENDICES


Date Time Indicator Period Previous

12/03/2018 11:00 Absa Manufacturing PMI Nov 42.4 20 - 22 November 2018

12/03/2018 Naamsa Vehicle Sales YoY Nov 1.7% 15 - 17 January 2019

12/04/2018 11:30 GDP Annualized QoQ 3Q -0.7% 26 - 28 March 2019

12/04/2018 11:30 GDP YoY 3Q 0.4% 21 - 23 May 2019

12/05/2018 09:15 Standard Bank South Africa PMI Nov 46.9 16 - 18 July 2019

12/06/2018 13-Dec BER Consumer Confidence 4Q 7 17 - 19 September 2019

12/07/2018 08:00 Gross Reserves Nov $50.17b 19 - 21 November 2019

12/07/2018 08:00 Net Reserves Nov $42.19b

12/11/2018 11:30 Mining Production YoY Oct -1.8%

12/11/2018 11:30 Mining Production MoM Oct 1.2%

12/11/2018 11:30 Gold Production YoY Oct -19.0%

12/11/2018 11:30 Platinum Production YoY Oct 7.2% Source: SARB

12/11/2018 13:00 Manufacturing Prod NSA YoY Oct 0.1%

12/11/2018 13:00 Manufacturing Prod SA MoM Oct -1.0%

12/12/2018 10:00 CPI YoY Nov 5.1%

12/12/2018 10:00 CPI MoM Nov 0.5%

12/12/2018 10:00 CPI Core YoY Nov 4.2%

12/12/2018 10:00 CPI Core MoM Nov 0.1%

12/12/2018 11:30 SACCI Business Confidence Nov 95.8

12/12/2018 13:00 Retail Sales Constant YoY Oct 0.7%

12/12/2018 13:00 Retail Sales MoM Oct -0.6%

12/13/2018 11:30 PPI YoY Nov 6.9%

12/13/2018 11:30 PPI MoM Nov 1.4%

12/16/2018 23-Dec Current Account as a % GDP 3Q -3.3%

12/16/2018 23-Dec Current Account Balance 3Q -164b

12/18/2018 09:00 Leading Indicator Oct 104.7

12/21/2018 14:00 South Africa Budget Nov --

12/31/2018 08:00 Money Supply M3 YoY Nov 5.99%

12/31/2018 08:00 Private Sector Credit YoY Nov 5.82%

12/31/2018 14:00 Trade Balance Rand Nov --

Source: Nedbank, Bloomberg

SARB MPC meeting dates – 2018/19

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 raised to 6.75% (previously 6.50%)

following the November 2018 MPC meeting.

Economic data releases


Nedbank Group forecasts

APPENDICES

Note that the above forecasts represent the Nedbank Group House view estimates

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

GDP q/q SAAR 1,30 -2,60 -0,69 2,20 2,10 0,60 0,90 1,70 2,10 2,30 1,60 1,50 2,40 2,40 1,90 2,00

Current account as a % of GDP -2,50 -3,60 -3,50 -3,70

Gold $/oz. (EOP) 1295,11 1323,73 1250,51 1181,42 1193,23 1193,23 1217,10 1229,27 1253,86 1241,32 1241,32 1216,49 1228,66 1253,23 1240,70 1240,70

Exchange rates (EOP)

USDZAR 12,410 11,813 13,713 14,113 13,830 13,830 14,522 14,231 13,947 14,016 14,016 13,876 14,084 14,225 14,439 14,439

EURZAR 14,837 14,544 15,954 16,399 15,833 15,833 16,542 16,131 15,777 15,777 15,777 15,464 15,618 15,774 15,931 15,931

GBPZAR 16,714 16,605 17,989 18,446 18,078 18,078 18,887 18,509 18,049 18,139 18,139 17,692 17,958 17,958 18,047 18,047

AUDZAR 9,682 9,070 10,138 10,178 9,945 9,945 10,390 10,162 9,949 10,038 10,038 9,889 10,077 10,158 10,289 10,289

ZARJPY 9,080 9,030 8,066 8,037 8,119 8,119 7,771 7,929 8,132 8,091 8,091 8,214 8,093 8,052 7,973 7,973

GBPUSD 1,347 1,406 1,312 1,307 1,307 1,307 1,301 1,301 1,294 1,294 1,294 1,275 1,275 1,262 1,250 1,250

EURUSD 1,196 1,231 1,163 1,162 1,145 1,145 1,139 1,133 1,131 1,126 1,126 1,114 1,109 1,109 1,103 1,103

USDJPY 112,68 106,67 110,61 113,42 112,29 112,29 112,85 112,85 113,41 113,41 113,41 113,98 113,98 114,55 115,12 115,12

USDCNY 6,508 6,289 6,623 6,886 6,893 6,893 6,900 6,934 6,948 6,955 6,955 6,962 6,997 7,011 7,018 7,018

USDCHF 0,978 0,957 0,995 0,977 0,990 0,990 0,993 0,996 0,996 0,999 0,999 1,007 1,010 1,012 1,015 1,015

USDAUD 1,282 1,302 1,353 1,387 1,391 1,391 1,398 1,400 1,402 1,396 1,396 1,403 1,398 1,400 1,403 1,403

SA Interest rates (EOP)

3-month JIBAR 7,16 6,87 6,96 7,00 7,28 7,28 7,28 7,27 7,27 7,50 7,50 7,75 7,74 7,73 7,73 7,73

Prime 10,25 10,00 10,00 10,00 10,25 10,25 10,25 10,25 10,25 10,50 10,50 10,75 10,75 10,75 10,75 10,75

Long bond (10-yr) 8,82 8,18 9,04 9,22 9,60 9,60 9,75 9,05 8,85 8,95 8,95 9,25 8,75 8,65 8,65 8,65

CPI % (EOP) 4,70 3,81 4,57 4,91 4,27 4,27 4,65 4,32 4,48 4,89 4,89 5,26 5,12 5,07 5,20 5,20

EOP = End of period rate 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.

2017 2018 2018 2019 2019 2020 2020


Other SA charts

APPENDICES


Chart 45: BER Manufacturing PMI (monthly) Chart 46: SA CPI yoy percentage (monthly)

Chart 48: SA 10y generic bond yield (monthly) Chart 49: SA GDP growth qoq % SAAR (quarterly)

Chart 44: SACCI Consumer Confidence Index (monthly)

Chart 47: SA Repo rate (monthly)

-20

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leve

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SACCI Consumer confidence index

30

35

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55

60

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BER Manufacturing PMI

Negative

Positive

2

3

4

5

6

7

8

%

SA CPI (y/y %)

4

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6

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%

SA Repo rate (%)

6

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10

%

SA 10y bond yield (%)

-8

-6

-4

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4

6

8

10

%

SA GDP growth - quarterly (q/q SAAR %)

4 qtr moving average

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MONTHLY INSIGHTS CHART PACK€¦ · This report is personal to the recipient and any unauthorised use, ... The mining and manufacturing industries switched fortunes in Q3 relative