Closing the loop 12 October 2021

Closing the loop

Shireen Darmalingam

Market highlights:

The rand is stronger at R14.96/$ (R15.02/$*) today; it traded in a range of R14.91/$ to R15.08/$.
It is above its 50-day, 100-day and 200-day moving averages (R14.74/$, R14.46/$ and R14.58/$, respectively).
EM currencies were mixed today; the THB (+1.3%), COP (+0.6%) and ZAR (+0.3%) were amongst the biggest gainers; the CLP (-0.6%), HUF (-0.5%) and TWD (-0.4%) were amongst the biggest losers.

The IMF has lowered its global growth outlook for 2021 to 5.9% (from 6% in July); 4.9% (unchanged) is expected in 2022.
The IMF noted that the global recovery continues but has lost momentum on the back of surges in Covid infections.
It is more concerned about growth risks, including from the Delta variant, strained supply chains, accelerating inflation and rising costs of food and fuel.
It is also concerned about a “dangerous divergence in economic prospects across countries”.
Advanced economies are set to expand by 5.2% in 2021 (from 5.6% previously and from a decline of 4.5% in 2020).
Emerging markets are expected to grow by 6.4% this year (previous estimate: 6.3%) from a contraction of 2.1% in 2020.
US growth is expected at 6.0% in 2021 (from 7.0% previously); growth in the EU is likely to rebound to 5.0% in 2021 from its previous estimate of 4.6%.
Sub-Saharan Africa is pencilled in to grow by 3.7% this year (from a decline of 1.8% in 2020).
SA GDP growth was revised up to 5% this year (from 4.0% previously) and by 2.2% (unchanged) in 2022.
We expect SA GDP growth to rebound to 5.2% this year from the 6.4% contraction in 2020.
The IMF provided some comfort to investors concerned about rising inflation; it expects inflation to subside to 2% in advanced economies by mid-2022.
However, higher inflation is expected in emerging and developing countries.

The market’s attention will be focused on the US FOMC meeting minutes tomorrow.
The Fed indicated that it will likely keep rates steady; investors will be looking for clues on the next steps regarding QE tapering.
The August UK GDP is scheduled for release tomorrow; expectations are for growth to come in at 3.0% in the 3 months to August from 3.6% in the 3 months to July.

Locally, mining production undershot expectations in August coming in at 2.0% y/y from an upwardly revised 12.3% y/y (previously 10.3% y/y) in July.
On a m/m basis, production was down by 2.4% in August after having increased by 3.2% in June.
The July manufacturing production rebounded in August increasing by 1.8% y/y after having contracted by 4.8% y/y in July.
On a m/m basis, manufacturing production was also up, by 7.6% from a decline of 8.4% in July.
Retail sales for August is scheduled for release tomorrow and is expected to have increased by 2.0% y/y in August from July’s 0.8% y/y contraction.
On a m/m basis, sales are expected to have increased by 9.5% from a decline of 11.2% in July.

Brent crude oil is at $83.42/bbl; ($83.65/bbl*).
Gold price is at $1765/oz ($1756/oz*).
SA CDS is at 218bps (218bps*), higher than Brazil 207bps (204bps*) and lower than Turkey 442bps (435bps*).
Yields: US 10yr at 1.60% (1.61%*), German bund at -0.0.98% (-0.121%*) and SA 10-year generic at 9.99% (9.99%*), SA’s R186 is at 7.93% (7.95%*).
The JSE ALSI is down by 0.1% today (+1.3%*).

* Denotes yesterday’s close.

Key events and data:

01h50: Japan core machine orders (August)
08h00: UK industrial production (August), manufacturing production (August), trade balance (August), GDP (August)
11h00: Eurozone industrial production (August)
13h00: SA retail sales (August)
13h00: US MBA mortgage applications (8 October)
14h30: US CPI (September)
20h00: US FOMC meeting (22 September)
China trade balance (September)

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