Local Market Commentary
- The African Union (AU) has begun monthly shipments of coronavirus vaccines acquired under an agreement signed with Johnson & John-son to supply 400mn doses of inoculation. Recall the AU signed an agreement in March to acquire 220mn doses of Johnson & Johnson shots, with the potential to order an additional 180mn doses. According to South Africa President Cyril Ramaphosa, the monthly ship-ments “will provide impetus to fight the coronavirus pandemic across the continent and will lay the basis for Africa’s social and economic recovery.”
- Zambia’s Markit/Stanbic PMI was little-changed in July, coming in at 49.4 from 49.3 in the month prior. Survey results show that new or-ders were broadly unchanged, while output decreased at a softer pace and employment increased for the second month running. Meanwhile, there were signs that the rates of input cost inflation slowed, but companies continued to increase their selling prices, sharp-ly in part to help improve profitability. Business confidence dipped to a five-month low and was well below the series average. That said, firms were still optimistic on balance, with some expecting a rise in activity following the upcoming elections. While the July reading signals a marginal decline in business conditions in Zambia’s private sector, the uncertainty surrounding the pandemic, the emergence of new variants, and Zambia’s idiosyncratic challenges suggest that downside risks exist in the near-term.
- Copper managed to close in the green overnight and that trend has been extended this morning albeit marginally. The red metal is cur-rently up by 0.3% on the session quoted at $9518.00/tonne as we enter the start of the EU session.
- Copper is currently experiencing a number of opposing forces. First we have a stronger dollar and fears over the Delta COVID-19 infection rate which is capping the topside, and supporting the market we have the threat of strike action out of Chile which will curb available sup-plies.
- The union representing the workers at the Chilean mine Escondida have instructed their members to prepare for strike action given the slow progress of the government mediated talks with management. Reuters reported the following – “The proposal has not changed sub-stantively and remains far from meeting the needed improvements,” the union said in a statement to its members. “We call on you to maintain unity and discipline and to be prepared to face the scenario of an eventual strike,” it said. BHP said in a statement to Reuters that it had made improvements to its offer and hoped to get closer to a deal.
- Stateside, initial Jobless claims fell slightly last week to suggest that US workers continue to return to the workforce, albeit in fits and starts. Lower jobless claims increase focus on the NFP data after the weak ADP print. Continuing claims are now a fresh pandemic low, but the recent spread of the delta variant suggests that the recovery may be inconsistent.
- Rising rates of Delta variant infection has resulted in questions being asked about the return-to-work mandate of many of Wall Street’s large corporates. Morgan Stanley has asked workers of one of its floors to stay home following the news that two of the bank’s employ-ees on the 14th floor had tested positive for COVID-19. This feeds into the view that the US recovery could ultimately slow, while the jobs market remains a little weaker than anticipated when judging from the outcome of the ADP report.
- The NFP report will be the major focus of the US session as investors gauge whether July’s economic performance was in line with expec-tations. The pace of hiring in the US economy in June was significant, yet the ADP outcome raises some questions about whether an up-set could be on the cards for today. An 858k print is forecast on Bloomberg, which has moderated slightly lower through the course of the week.
- Focus will be on whether the hiring brings down the unemployment rate after it ticked higher in June, owing to an increase in the labour participation rate. Wages, meanwhile, may continue to accelerate, helped along by the still low levels of labour supply.
- Overall, a rising number would point to a stronger labour market and improving economic growth prospects, although we are still some way away from recovering fully from the pandemic and will need a few more months of stellar jobs numbers to get the Fed thinking about easing off its stimulus pedal.
- Shifting to the FX market, the Kwacha is expected to trade on the front foot next week amid increased hard currency flows and buoyant copper prices. Meanwhile, the dollar is currently underpinned as we enter the final day of trade for the week with investors focused on the US Non-Farm payrolls data. Comments made by Minneapolis Fed President Neel Kashkari who stated that he expects a strong labour recovery in the Northern Hemisphere autumn which is only a few weeks away has supported the dollar ahead of today’s release, but equally underscored the importance of the employment figures in the equation. We currently have the USD index holding just above 92.30 into the EU open.
Rand and International FX Commentary
- Emerging market currencies encountered mixed performances yesterday, with markets struggling for clear cut direction ahead of an an-ticipated US jobs report due later today. The ZAR mirrored broader sentiment, swinging between gains and losses as it traded in a narrow range for the majority of domestic trading hours. The local unit ultimately closed the day flat at the 14.3800/$-handle. The dollar, mean-while, held relatively firm after jumping the day prior on more hawkish Fedspeak from FOMC Vice Chair Richard Clarida.
- As of yesterday, the ZAR still looked set to post a weekly gain as it had managed to snap broader dollar strength this week. However, FX markets in general still have to contend with today’s US nonfarm payrolls release, which could see intraday volatility in the event of any positive surprises. As for option pricing, USD-ZAR overnight and one-week implied volatilities rose to their highest since last week, where hedging costs were last buoyed amid the Fed’s policy announcement.
- While expectations are for US labour market conditions to continue improving in July in line with June’s gains, it is evident that the Delta COVID-19 variant brings risk to the reemployment while demand for labour has vastly outstripped supply in recent months. These chal-lenges were seen in Wednesday’s private payrolls data which came out substantially lower than expected and may cause investors to al-ter expectations for today’s NFP release. However, recent hawkish Fedspeak complicates current market dynamics, as it has kept the dol-lar supported in the run-up. Although, this does arguably open the market to a downwards surprise, as was the case with Wednesday’s payrolls data.
- All in all, FX markets will trade cautiously leading into the session, given the implications that a strong month of hiring has on the US policy outlook. Domestically, overnight moves in the political sphere may cause some volatility in domestic markets as investors price in cabinet changes announced by President Cyril Ramaphosa last night. The cabinet reshuffle involves 10 ministers and 11 deputy ministers in total, including the Ministry of Defence, the Ministry of Health and the Ministry of State Security, which will be brought under the control of the Presidency. Additionally, Tito Mboweni resigned as Finance Minister, with his replacement being chairman of the ANC’s economic trans-formation subcommittee Enoch Godongwana. The President’s justification for the changes was to speed up the rollout of covid-19 vac-cines, rebuild the economy and ensure stability following recent riots and looting that destroyed businesses in several provinces.
- The significant change in the Finance Ministry risks upsetting markets, given that Mboweni has been a proponent of reducing govern-ment debt, the public wage bill and promoting policy reform to bolster economic growth and employment. Thus far, the changes have had a negative reaction in markets, with the USD-ZAR spiking 2.5% higher to 14.7500 overnight before settling roughly 1% higher around the 14.5200-handle. Although the reshuffle was expected, the ZAR may still be entering the weekend on the back foot, with EM curren-cies generally facing headwinds in early morning trade as the USD remains buoyed ahead of the official US jobs report.