In today's market update, StatsSA will finally release the mining data for June as well as July, providing the final piece needed to update SA's Q2 GDP numbers.
Mining Production m/m: Jul
Analysis: StatsSA will finally release the mining data for June as well as July, providing the final piece needed to update SA's Q2 GDP numbers, which were recently released using provisional estimates of the sector's output. Even if the figures alter the Q2 GDP figures, not much attention will be paid to the June release given how dated they are now. The July figures, meanwhile, will provide further evidence into the impact of the civil unrest in the country, although the sector should have escaped largely unscathed.
Risk appetite kicked off the week on a tetchy note, with the USD remaining on the front foot for most of the domestic trading session. However, a late afternoon pullback saw the USD trade-weighted index (DXY) pare gains on the day as FX markets struggled for clear cut direction. The ZAR, meanwhile, snapped broader market moves as it gained amongst only a handful of emerging market currencies yesterday. The local unit was up amongst commodity currencies, ultimately gaining 0.35% for the first trading session of the week to close at 14.1600/$.
As for broader emerging market sentiment in recent weeks, risk appetite has remained largely supportive. Given the ZAR’s sensitivity to risk dynamics, it is unsurprising that it has shot to the top spot in recent weeks as investors have continued to pour into EM asset classes. According to data compiled by Bloomberg, US-listed emerging market ETFs recorded inflows for the third straight week last week. This ultimately speaks to the outlook for US monetary conditions and the potential risks to Fed asset purchase tapering or overall tightening of monetary policy. With interest rates set to remain low for some time still, investors will continue to favour EM asset classes over traditional, safer stateside options, which will continue to contribute to downside pressure on the USD in the short to medium term. Additionally, the prospect of higher taxes amongst developed nations, especially in the US, will likely stoke the bias towards EM asset exposure. As for ETFs which purchase SA assets, these recorded inflows of $7.2 million, of which $6.3 million were equity inflows and the remainder into funds that purchase domestic bonds.
As for the day ahead, delayed mining production data for both June and July will finally be released. Given last week’s Q2 GDP release used estimates for June’s mining output, this may be the source of some revision to second quarter growth estimates. However, these figures are extremely dated, which will remove most significance, especially given the social tensions which followed. The July figures, meanwhile, will provide further evidence into the impact of the civil unrest in the country, although the sector should have escaped largely unscathed.
There is some evidence to suggest that the international community is becoming hesitant on exposure to SA's structural risks, with total ownership of SAGBs and SA equities lower than they have been in a long time. Yet it is also worth noting that there could also be some overestimation of risk when looking at the JSE's bond flows data, which estimates a net outflow from SAGB foreign accounts while the NT data suggests that there was an inflow over August.
Note that as NT data will be bound by global institutional reporting standards ultimately monitored by SARS, and it is more likely to be correct. This suggests that those using JSE data to report on net flows should be aware that an overestimation of risk could be underway. This would also explain how yields can be relatively stable while CDS spreads narrow despite the apparent outflows. Analytically, foreign portfolio outflows are associated with narrowing yield spreads and rising CDS levels, yet the reverse has been happening which cannot all be due to loose US monetary and fiscal policy.
The US inflation outlook will be monitored today. Consumer inflation in the US is expected to have moderated slightly from the surge seen in July. Price pressures within reopening-sensitive sectors are easing as the economy is slowly normalising. Still, specific categories such as used vehicles and rents will keep the headline elevated over the next few months. Given the sensitivity of global markets to inflation at the moment, any surprises in the data will be market moving.