reezwana sumad …...page 5 global developments the world is already in a recession, as per the imf...

REEZWANA SUMAD [email protected]

WALTER DE WET [email protected]

JUNE 2020

MONTHLY INSIGHTS CHART PACK

TABLE OF CONTENTS▪ Summary of views 3

▪ Global developments 4

▪ Monetary policy dynamics: Global 6

▪ SA’s real economy 8

▪ SA inflation trends 9

▪ Monetary policy dynamics: SA 10

▪ Credit risk comparison 11

▪ SA’s 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

• Lockdown scenarios and impact on SA growth 20

Please click here to view our Nedbank CIB disclaimer

https://aem-auth.nednet.co.za/content/dam/nedbank-crp/reports/Equities/Disclaimer/Research%20Disclaimer_1905.pdf

https://aem-auth.nednet.co.za/content/dam/nedbank-crp/reports/Equities/Disclaimer/Research%20Disclaimer_1905.pdf

SUMMARY OF VIEWS

Lockdown measures ease, stimulus begins to flow and risk appetite improves

• In its latest update, the IMF’s World Economic Outlook report painted a bleak picture of the world economy, projecting a 3% full-year contraction in global growth. The IMF estimates that the

global economy will be USD9tn smaller as a result of the pandemic. It also expects a sharp rebound in 2021, with growth of 5.8% projected, if the COVID-19 pandemic fades in 2H20.

• The SA economy will likely experience a significant contraction as a result of the lockdown-induced decline in production in 2020. In March, before SA’s lockdown was announced, we put the

country’s growth forecast for 2020 at -1.8% y/y. This considered mainly the negative trade shock but did not include a full-scale lockdown of the economy. Now, with the country heading for five

weeks of total lockdown and then a staggered, risk-adjusted opening of the economy, we expect growth to register -7.0% y/y in 2020. The bias to this estimate is to the downside.

• Our outlook on inflation remains dovish – while we forecast a 3.9% average CPI rate for 2020, there is significant downside risk as a result of the current extended lockdown and the global

commodity price decline, which are both uncertain influences on prices – we do not know how long these effects will last and, so, this makes forecasting challenging. Nonetheless, the IMF

estimates SA CPI at 2.4% in 2020 and 3.2% in 2021, while the SARB’s estimates are 3.6% and 4.5%, respectively. The wide gap signals significant uncertainty amid the current crisis.

• In line with our expectations and in a split decision, the SARB MPC decided to reduce the repo rate by a further 50bps, to 3.75%, with prime now at 7.25%. Three MPC members voted in favour

of the 50bps cut, while two members voted for a 25bps cut. This could signal a pause in the sharp interest-rate easing cycle. Our view on interest rates remains unchanged – we believe the

SARB could reduce policy rates by a further 25-50bps before year-end. Like the SARB, we believe the risks to both inflation and growth are to the downside. The four-quarter-ahead real policy

rate is now negative, at -65bps, which means the SARB is fast depleting its interest-rate armoury, particularly as it continues to forecast an inflation rate that returns to the midpoint.

• The SAGB yield curve bull flattened in the past month, with some points rallying by more than 100bps as offshore demand for SA bonds picked up following the finalisation of the WGBI

rebalance. Buying was concentrated in the long-end portion of the curve, while the front-end yields were impacted by a less-dovish SARB muting future rate cut expectations. Global risk

appetite improved, which helped spur a bull market locally. In the past month, we have seen the 10y bond yield fall below our fair value level of 9.0%, while the R2048 has fallen closer to our

10.3% target. We will likely relook at our valuation in the coming weeks, as US inflation has decoupled from long-run trends and this is expected to persist over the medium term.

• In early April, we indicated our belief that the rand had found a broad top and that many of the negative events that rocked the global and domestic economies – including WGBI exclusion –

were largely priced into the currency. Since then, WGBI exclusion has passed without much fanfare, and the rand has broadly traded in the 18.00-19.00 range. Although volatility will likely

remain high, we continue to hold the view that the rand has reached a broad top, and maintain a target of 15.00 against the USD. We think of this as a six- to nine-month view.

Disclaimer – The views and observations in this report represent the analyst’s own and not the Nedbank Group house view. Nedbank Group house view forecasts are available in the appendix.

Current price/yield3-month 17.00

6-month 15.00

12-month 15.00

Repo rate 3.75

3-month 3.60

Year-end 3.80

3-month 8.10

Year-end 8.10

3-month 10.30

Year-end 10.30

Source: Nedbank CIB Markets Research

In the past month we have seen the 10y bond yield fall below our fair value level of 9.0%,

while the R2048 has fallen closer to our 10.3% target. We will likely relook at our valuation in

coming weeks as US inflation has decoupled from long-run trends and this is expected to

persist over the medium term.

SAGBs

We believe that the door is still open for repo rate cuts between 25-50bps this year

Target levels

Our target for the USDZAR stands unchanged at 15.00. We see this as a six- to nine-month

target, with the bias that it is reached sooner. We have a target of 17.00 against the EUR.17.43USDZAR

Core views

3.52 (R208)

7.49 (R186)

10.81 (R2048)

GLOBAL DEVELOPMENTS

Global CPI and PPI weighed down by lockdown measures, slump in consumer demand

• The international Brent crude price tumbled 55% in March as

Saudi Arabia declared a price war due to a fallout with Russia

when negotiating production cuts in February. The oil price

subsequently fell to its lowest level since 2002 and experienced

its steepest decline since the 2008 recession. In April, the oil

price declined by a further 7% as global demand tumbled on the

back of widespread country lockdowns due to the COVID-19

pandemic. Since bottoming at USD20/bbl. in April, the Brent

crude price has rebounded, rising by 98%. The recovery in the oil

price is mainly due to lockdown measures being eased in many

countries, and some countries noting a rise in demand for oil as

economic activity picks up. Despite the recent oil price recovery,

price data for April and May still reflects a benign inflation

trajectory in most major economies. Therefore, any resumption in

economic activity may be reflected in prices only with a lag, i.e.,

from June.

• Eurozone CPI declined to 0.15 y/y in May, from 0.4% in April,

while core inflation remained unchanged at 0.9%. Energy costs

remained in deflation in May, but services inflation picked up

marginally. Prices of food, alcohol and industrial goods continued

to ease. In the UK, PPI remained in deflation, falling to -9.8% y/y

in April, from -3.15 in March, weighed down by petroleum and

raw material prices. CPI fell to 0.8% y/y in April, from 1.5% in

May, driven by the fuel price slump.

• US export prices remain in deflation, at -7% y/y in April, while

PPI fell into deflation in April, slumping to -1.2% y/y, from +0.7%

in March. CPI fell to 0.3% y/y, from 1.5% in March, weighed

down by energy, fuel, apparel, services, transportation and

recreation costs. With unemployment rates across the US rising

sharply, underlying inflation remains muted. Core CPI declined

by the most on record (since 1957) in April, due to spending on

apparel and travel collapsing.

• Global disinflationary conditions are set to persist for as long as

global demand remains very weak, trade activity remains limited,

and risk appetite remains muted.

Source: Bloomberg, Nedbank CIB Markets Research

Chart 2: G7 input costs are in deflationChart 1: Global inflation trend subdued

Economic, fiscal

and monetary

indicators

Available data

as at 01- Jun- 20 LAST PREV. LAST PREV. LAST PREV. LAST PREV. LAST PREV. LAST PREV. LAST PREV.

US -21.6 -5.7 86.6 85.7 -5 2.1 43.1 41.5 -11.3 -4.51 -8.98 -4.81 0.25 0.25

UK -22.6 0.2 -34 -34 -2 0 40.7 32.6 -8.2 -3.4 -2.83 -1.99 0.1 0.1

Eurozone -9.2 2.5 -18.8 -22 -3.8 0.1 39.4 33.4 -12.9 -2.2 -0.65 -0.81 0 0

Japan -13.7 -4.7 24 21.6 -3.4 -7.3 38.4 41.9 -14.4 -5.2 -2.58 -2.41 -0.1 -0.1

Turkey -8.05 1.96 59.75 55.5 0.3 0.66 40.9 33.4 -2 8.5 -2.64 -2.89 8.25 8.75

China -7.5 -15.8 116.4 122.2 -6.8 6 50.6 50.8 3.9 -1.1 -8.3 -5.3 4.35 4.35

Brazil -1.2 4.7 62.1 58.2 -1.5 0.4 38.3 36 -3.8 -0.3 -7.48 -6.24 3 3.75

Russia -23.4 5.6 68.3 71.3 1.6 2.1 36.2 31.3 -6.6 0.3 2.65 2.94 5.5 6

India 4704 4611 47.8 46.1 3.1 4.1 30.8 27.4 -16.7 4.6 -4.6 -4.41 4 4.4

Mexico -1.3 2.5 105.1 106.1 -1.24 -0.57 41.04 43.77 -4.98 -2 -1.43 -1.64 5.5 6

South Africa 2 1.3 -9 -7 -1.4 -0.8 50.2 46.1 -2.1 -1.8 -6.29 -5.87 3.75 5.25

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

1

2

3

4

5

6

20

15

/03

/01

20

15

/05

/01

20

15

/07

/01

20

15

/09

/01

20

15

/11

/01

20

16

/01

/01

20

16

/03

/01

20

16

/05

/01

20

16

/07

/01

20

16

/09

/01

20

16

/11

/01

20

17

/01

/01

20

17

/03

/01

20

17

/05

/01

20

17

/07

/01

20

17

/09

/01

20

17

/11

/01

20

18

/01

/01

20

18

/03

/01

20

18

/05

/01

20

18

/07

/01

20

18

/09

/01

20

18

/11

/01

20

19

/01

/01

20

19

/03

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20

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20

19

/07

/01

20

19

/09

/01

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19

/11

/01

20

20

/01

/01

20

20

/03

/01

%

Global inflation rates

US Eurozone Japan China UK

Table 1: Summary of economic and financial indicators

GLOBAL DEVELOPMENTS

The world is already in a recession, as per the IMF

Chart 5: EM PMIs follow global trend

Source: Bloomberg, IIF, Nedbank CIB Markets Research

25

30

35

40

45

50

55

60EM manufacturing PMIs

Indonesia India Brazil Turkey Mexico South Africa

Chart 6: IIF: China’s outflows since the

start of the COVID-19 pandemic

• In its latest update, the IMF’s World Economic Outlook report

painted a bleak picture of the world economy, projecting a 3%

full-year contraction in global growth. This would be the worst

recession since the Great Depression of the 1930s and far worse

than the 2008 recession. The IMF estimates that the global

economy will be USD9tn smaller as a result of the pandemic.

This is the first time since the Great Depression that both

advanced and emerging-market (EM) economies are in

contraction. It also expects a sharp rebound in 2021, with growth

of 5.8% projected, if the COVID-19 pandemic fades in 2H20.

• This recovery would still depend on extensive fiscal and

monetary support to countries worst hit by the virus. It expects

the economies of 9 of 10 countries to contract this year. The IMF

has deployed a USD1tn lending capacity to countries requiring

financial support, while it has called upon governments, creditors

and multilateral institutions to work together to ensure the world

does not de-globalise once the crisis has ended. The IMF has

also explored an alternative scenario – if the pandemic does not

ease in 2H20, this may lead to longer containment periods,

worsening financial conditions and a breakdown in global supply

chains; global GDP could then contract by a further 3%, with a

cumulative 8% reduction in global GDP relative to its baseline

scenario above. Due to increased fiscal stimulus, it expects debt

levels to rise in 2020. However, as long as interest rates remain

low and the post-crisis recovery materialises, reducing the global

debt load after 2021 would be possible.

• China’s economy contracted by 9.8% q/q in 1Q, from 1.5%

growth in 4Q19. The US economy contracted by 5% q/q in 1Q20,

from 2.1% growth in the previous quarter, as consumer

spending, investment spending and global demand declined. The

UK contracted by 2% q/q in 1Q, from no growth in 4Q19, as

consumer and government spending, and investment declined.

The Eurozone contracted by 3.8% q/q, from 0.1% growth in

4Q19, for similar reasons. Most countries will likely experience

deeper contractions in 2Q, as the bulk of the lockdown measures

intensified since March.

30

35

40

45

50

55

60

65

Major manufacturing PMIs

US Eurozone Japan China UK

35

40

45

50

55

60Manufacturing PMIs

EM PMI Global PMI

Chart 3: Major PMIs are now

contractionary

Chart 4: Global manufacturing activity

falls sharply as a result of pandemic

MONETARY POLICY DYNAMICS: GLOBAL

Measures were eased in May as countries grappled with deep economic contractions

• March 2020 saw a wave of panic-induced interest rate cuts,

starting with the Fed’s out-of-cycle meeting and 50bps reduction

to the Fed funds target rate. The Bank of Canada, Bank of

England (BoE) and the central banks of Iceland, Serbia, Ukraine,

Norway, New Zealand, South Korea, Sri Lanka, the Czech

Republic, Egypt, Chile, Costa Rica, Turkey, Pakistan, Tunisia,

Poland, Ghana, Brazil, Australia, Indonesia, Taiwan, the

Philippines, SA, Guatemala, Peru, Namibia, Thailand, Mexico,

Kenya, Romania, India and Colombia all followed suit, with most

cutting interest rates by an even larger margin than the Fed. The

ECB, however, left interest rates unchanged, but introduced

cheaper bank loans and a EUR750bn asset purchase

programme that will focus on corporate debt.

• In April, central banks continued with reducing interest rates to

support their respective economies: Poland, Israel, Sri Lanka,

Serbia, Peru, SA, Namibia, Pakistan, India, Mozambique,

Mexico, Hong Kong and Turkey reduced interest rates.

• In May, some central banks with space to ease policy rates did

cut – Brazil, Malaysia, Norway, the Czech Republic, Belarus,

Mexico, Pakistan, Thailand, Iceland, Zambia, Turkey, SA, India,

Kenya, South Korea, Poland, Nigeria, Romania and Bulgaria

were among the countries with lowered interest rates in May.

Next MPC meeting

Probability of a

hike/cut/hold

US 2020/06/10 20:00:00 99.40%

UK 2020/06/18 13:00:00 97.90%

Eurozone 2020/06/04 13:45:00 12.70%

Japan 2020/06/16 5.90%

China

India 2020/04/03 139.80%

Mexico 2020/06/25 20:00:00

South Africa 2020/07/23 90.80%

Updated 01-Jun-20


Chart 7: US inflation expectations are

sticky above 2%

Chart 8: UK inflation remains elevated;

expectations rise

Chart 9: Eurozone swap markets more in

tune with actual inflation

Chart 10: Real rates are now

accommodative across DMs

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

2016/02/15 2017/02/15 2018/02/15 2019/02/15 2020/02/15

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

2016/02/16 2017/02/16 2018/02/16 2019/02/16 2020/02/16

UK inflation expectations

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

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

2016/02/16 2017/02/16 2018/02/16 2019/02/16 2020/02/16

Europe inflation expectations

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

MONETARY POLICY DYNAMICS: GLOBAL

Global central banks’ coordinated interest rate cuts take interest rates to multi-year lows

• The ECB left interest rates unchanged but introduced additional

QE measures to provide more liquidity to financial markets.

These measures include preferential and lower interest rates to

banks, a EUR750bn bond-buying programme, and greater

flexibility with banks’ capital-adequacy ratios.

• The BoE cut interest rates by 60bps in March, with the

benchmark bank rate settling at 0.1%. It also announced

GBP200bn worth of asset purchases, which it said can be raised

if financial conditions warrant it. Fiscal stimulus was also

provided by the finance ministry.

• The Fed kicked off interest rate cuts in early March, with an

emergency 50bps reduction to the Fed funds target rate, followed

by a further 100bps reduction at its scheduled policy meeting two

weeks later, taking the Fed funds target rate to 0.25%. The US

Senate also passed a USD2tn stimulus package to support the

economy during the outbreak. The Fed’s emergency rate

reduction prompted at least 32 other central banks to reduce

interest rates in March.

• The PBoC reduced the interest rate on the seven-day bank repo

facility by 20bps, to 2.2%, as it seeks to increase support to the

economy and ease liquidity conditions. Other measures to

stabilise the economy include raising the fiscal deficit by

borrowing more and allowing local governments to sell more

infrastructure bonds.

• Of 53 major central banks, only 10 banks kept rates unchanged,

while the rest have reduced interest rates sharply in the past

three months.

Chart 11: Fed begins loosening monetary

policy

Chart 12: Global bond yields supported by

weak global growth and trade uncertainty

Chart 13: EM monetary policy stance

broadly loose

Chart 14: EM bond yields surge as a

result of recent risk-off

-1

0

1

2

3

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7

20

02/0

2/1

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2/1

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2/1

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19/0

2/1

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20

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2/1

4

%

Major central banks interest rates

Fed funds rate - upper band ECB main refinancing rate

BOE bank rate BOJ policy rate

0

5

10

15

20

25

30

EM policy rates


0

5

10

15

20

25 EM 10y bond yields


0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

20

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Majors: 10y bond yields

US Euro Japan UK China (RHS)


SA’S REAL ECONOMY

SA economy to face deepest recession in the current democracy

• The SA economy will likely experience a significant contraction

as a result of the lockdown-induced decline in production in 2020.

Unfortunately, despite the current lockdown ending, much

economic damage has been done already. With the onset of the

COVID-19 pandemic in February, it was clear that the world and

SA would receive a growth shock. In March, before SA’s

lockdown was announced, we put the country’s growth forecast

for 2020 at -1.8% y/y. This considered mainly the negative trade

shock but did not include a full-scale lockdown of the economy.

• Now, with the country heading for five weeks of total lockdown

and then a staggered, risk-adjusted opening of the economy, we

expect growth to register -7.0% y/y in 2020. Our growth

assumption assumes that economic activity returns to normal by

1Q21. Our estimates suggest that the lockdown and subsequent

measures will subtract an additional 5.2% from growth in 2020.

Our estimates point to a 4.7% rebound in GDP growth in 2021,

but this too carries downside risks.

• Household consumption of durable goods as well as gross fixed

capital formation, especially by the private sector, are set to

decline sharply. In relative terms, the services sector is likely to

hold up the best. There are still significant downside risks to

these estimates, particularly if the risk-adjusted reopening of the

economy takes longer than expected, or worse still, if the country

returns to stage 5 restrictions for a longer period of time. The IMF

forecasts a 5.8% contraction of the SA economy in 2020,

followed by a 4% rebound in growth in 2021. However, it notes

significant uncertainty in its forecasts amid the current crisis.

Source: Bloomberg, Stats SA, Nedbank CIB Markets Research

Chart 15: SA confidence leads investment

growth

Chart 16: SARB’s leading index now

declines

Chart 17: SA’s economy needs to reduce

dependence on government

Chart 18: Spending is a key driver of

economic activity

-8

-6

-4

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2

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20

30

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%

Ind

ex

SA investment vs. confidence

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

2% 4% 3% 1% 3% 3% 3% 1% 2% 3% 3% 1%4% 4% 4% 3% 4% 5% 4% 3% 4% 5% 4% 3%

4%4%

4% 4%4% 4% 4%

4% 4%4% 4%

4%

6%6%

6%6%

6% 6% 6%6% 6%

6% 6%6%

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

9% 8%8% 9%

9%

10% 10% 10%10% 10% 9% 10% 10% 10%

10% 10%10%

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

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

18% 18% 18% 18% 18% 18% 18% 18% 19% 18% 18% 18%

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2017 - Q1 2017 - Q2 2017 - Q3 2017 - Q4 2018 - Q1 2018 - Q2 2018 - Q3 2018 - Q4 2019 - Q1 2019 - Q2 2019 - Q3 2019 - Q4

GDP breakdown by Sector

Agriculture, forestry and fishing Electricity, gas and water ConstructionPersonal services Mining and quarrying Transport, storage and communicationManufacturing Trade, catering and accommodation General government servicesFinance, real estate and business services

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

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

19% 19% 18% 18% 19% 18% 18% 18% 18% 18% 18% 17%

-1%

0% 1%

-1% 0%

0% 1%

-2% -1%

1% 1%

-2%

0% 1% 1% 2%

-1%

1%

0%

1%

0% 0%

0%2%

-20%

0%

20%

40%

60%

80%

100%

2017 - Q1 2017 - Q2 2017 - Q3 2017 - Q4 2018 - Q1 2018 - Q2 2018 - Q3 2018 - Q4 2019 - Q1 2019 - Q2 2019 - Q3 2019 - Q4

GDP breakdown by expenditure

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

-20

-15

-10

-5

0

5

10

15

20

25

-8

-6

-4

-2

0

2

4

6

8

10

03

-20

02

01

-20

03

11

-20

03

09

-20

04

07

-20

05

05

-20

06

03

-20

07

01

-20

08

11

-20

08

09

-20

09

07

-20

10

05

-20

11

03

-20

12

01

-20

13

11

-20

13

09

-20

14

07

-20

15

05

-20

16

03

-20

17

01

-20

18

11

-20

18

09

-20

19

%%

SA leading index and growth

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

SA INFLATION TRENDS

SA CPI surprises to the downside in March – delay in April and May releases

• SA CPI fell to 4.1% y/y in March, from 4.6% in February, better

than consensus estimates of 4.2%. Goods inflation eased by

20bps to 4.1% y/y, while services inflation declined by 10bps, to

4.2% y/y. Due to weak demand, core inflation fell to 3.7% y/y

(3.8% prev.).

• The main disinflationary drivers of inflation in March were

transport costs, prices of alcoholic beverages and tobacco, and

prices at restaurants and hotels.

• Fuel inflation more than halved, to 5.5% y/y in March, as a result

of the decline in the petrol price in March. This trend will likely

intensify following the slump in the petrol price in April and,

possibly, in the coming months as well.

• Our outlook on inflation remains dovish – while we forecast a

3.9% average CPI rate for 2020, there is significant downside

risk as a result of the current extended lockdown and the global

commodity price decline, which are both uncertain influences on

prices – we do not know how long these effects will last and, so,

this makes forecasting challenging. Nonetheless, the IMF

estimates SA CPI at 2.4% in 2020 and 3.2% in 2021, while the

SARB’s estimates are 3.6% and 4.5%, respectively. The wide

gap signals significant uncertainty amid the current crisis. We still

believe the SARB has scope to reduce interest rates further this

year, by 50-75bps (as soon as the May meeting). However, the

monetary policy response in 2021 will likely depend on how

inflation evolves.

• Stats SA has delayed the April and May CPI releases, due to the

current lockdown restrictions limiting its ability to source basket

prices for these months. It is due to release the April and May

reports on 17 and 24 June 2020, respectively.


Table 2: Nedbank CIB inflation estimates

Chart 19: We expect CPI inflation to remain

contained below 6% at least until 2022

Chart 20: Breakeven inflation falls below

SARB’s target Chart 21: SA historical CPI and PPI

Average CPI Core Food Oi l USDZARElectrici ty

2019A 4.1 4.2 3.0 64.6 14.4 9.4

2020F 3.9 3.4 4.8 39.4 16.8 9.6

2021F 4.5 3.9 5.6 42.3 15.6 8.6

2022F 4.4 3.9 5.0 46.3 16.1 8.8

Q1:19F 4.2 4.4 2.3 65.4 14.0 7.6

Q2:19F 4.5 4.2 2.8 67.9 14.3 6.8

Q3:19F 4.1 4.2 3.5 62.1 14.8 11.3

Q4:19F 3.8 3.9 3.6 62.9 14.6 11.8

Q1:20F 4.4 3.7 4.1 43.8 16.2 11.9

Q2:20F 3.8 3.5 4.2 37.4 17.8 9.8

Q3:20F 3.6 3.3 5.2 37.4 16.5 8.3

Q4:20F 3.8 3.2 5.6 38.9 16.9 8.3

Q1:21F 4.4 3.9 6.0 40.4 15.5 8.3

Q2:21F 4.6 3.9 6.0 41.8 15.5 8.3

Q3:21F 4.5 3.9 5.4 43.1 15.5 8.9

Q4:21F 4.4 3.9 5.2 44.1 15.8 8.9

Nedbank CIB Markets Research estimates

4.2

4.5

4.1

3.8

4.4

3.83.6

3.8

4.4

4.64.5

4.4

4.7

4.44.3 4.3

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0 SARB CPI forecasts

Nedbank CIB Markets Research estimates Bloomberg consensus MAR APR

2.5

3.5

4.5

5.5

6.5

7.5

8.5

2015

/05/

01

2015

/08/

01

2015

/11/

01

2016

/02/

01

2016

/05/

01

2016

/08/

01

2016

/11/

01

2017

/02/

01

2017

/05/

01

2017

/08/

01

2017

/11/

01

2018

/02/

01

2018

/05/

01

2018

/08/

01

2018

/11/

01

2019

/02/

01

2019

/05/

01

2019

/08/

01

2019

/11/

01

2020

/02/

01

2020

/05/

01

%

SA 5y breakeven inflation rate

SA 5y Breakeven inflation 3m moving average

3

3.5

4

4.5

5

5.5

6

6.5

7

7.5

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

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

AP

R

MA

Y

2016 2017 2018 2019 2020

SARB MPC Meetings

SARB CPI forecasts - evolution

2017 2018 2019 2020 2021 2022

MONETARY POLICY DYNAMICS: SA

SARB: Split decision on a 50bps cut may introduce a pause

• In line with our expectations and in a split decision, the SARB

MPC decided to reduce the repo rate by a further 50bps, to

3.75%, with prime now at 7.25%. Three MPC members voted in

favour of the 50bps cut, while two members voted for a 25bps

cut. This could signal a pause in the sharp interest-rate easing

cycle. However, this remains data-dependent in the current

highly fluid economic environment. The SARB has indicated that

it stands ready to deploy all its tools available in its mandate in

order to support households and businesses during the

pandemic.

• The QPM now signals another 15bps reduction in the repo rate

before year-end, with a mild hiking cycle projected in 2021 and

2022. While the QPM is used as a broad policy guide, it further

supports perhaps a pause as opposed to the large repo-rate

reductions we have seen in the past two months. The MPC

statement was still dovish as one would have expected, but

significantly less so than the FRA and bond market expectations.

This will likely result in some bear-curve flattening, prompted by

the front end moving higher. The SARB action also favours a

stronger rand – in line with our currency view.

• Our view on interest rates remains unchanged – we believe the

SARB could reduce policy rates by a further 25-50bps before

year-end. Like the SARB, we believe the risks to both inflation

and growth are to the downside. The four-quarter-ahead real

policy rate is now negative, at -65bps, which means the SARB is

fast depleting its interest-rate armoury, particularly as it continues

to forecast an inflation rate that returns to the midpoint.

Source: Bloomberg, SARB, Nedbank CIB Markets Research

Chart 22: SARB’s negative output gap

does not close, QPM dovish

Chart 23: SARB now sees a recession in

2020

Chart 24: SARB’s inflation forecasts are

well below its 2016 and 2017 estimates

Chart 25: Core inflation estimates revised

lower, signaling lack of demand-pull

inflation

3 3 2 3 4.3 4.8 4.8 3 1 1

-1 -0.4 -0.4 -1 -0.4 -2

4

-9

-7

-5

-3

-1

1

3

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

JAN

MA

R

AP

R

MA

Y

2017 2018 2019 2020

SARB MPC Meetings

SARB output gap forecasts - evolution

QPM (25bps) 2016 2017 2018

2019 2020 2021 2022

-8

-6

-4

-2

0

2

4

6

MAY SEP JAN MAY SEP JAN MAY SEP JAN MAY SEP JAN MAY SEP JAN APR

2016 2017 2018 2019 2020

SARB MPC Meetings

SARB GDP forecasts - evolution

2015 2016 2017 2018 2019

2020 2021 Actual 2022

3.3

3.8

4.3

4.8

5.3

5.8

6.3

6.8

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

JAN

MA

R

MA

Y

JUL

SEP

NO

V

JAN

MA

R

AP

R

MA

Y

2016 2017 2018 2019 2020

SARB MPC Meetings

SARB core-CPI forecasts - evolution

2015 2016 20172018 2019 2020

CREDIT RISK COMPARISON

Moody’s downgrades SA’s credit rating to Ba1 (Neg)

• Moody’s downgraded the sovereign’s credit rating from “Baa3” to

“Ba1”, with the outlook remaining Negative. The Negative outlook

horizon (12-18 months for sub-investment grade) reflects the risk

that economic and fiscal metrics could deteriorate further, driven

by policies being ineffective in containing the impact of the global

recession on the SA economy and reform inertia further

entrenching negative domestic economic sentiment. This could

further lower debt affordability and potentially weaken the

government’s current strong access to funding.

• The government’s ability to mitigate the above risks is currently

limited, as the fiscus is already under strong and widespread

pressure, while monetary policy cannot address underlying

structural economic issues. The decision to downgrade the credit

rating was in response to the government’s constrained capacity

to stimulate the economy in a period of low global and domestic

growth, coupled with an unavoidable further rise in debt over the

medium term at a pace faster than Moody’s had expected.

• The rating transition was driven by a downward revision in the

economic score by one notch from “Baa2” to “Baa3” (in line with

our expectations) and the fiscal score by three notches from

“Ba1” to “B1” (worse by one notch than we had initially

expected). While the institutional and governance, and

susceptibility to event risk scores have remained unchanged,

Moody’s highlights some deterioration in both metrics.

• In our view, the risk that SA will be downgraded further down

sub-investment grade remains, as domestic politics are still

unlikely to create sufficient space for the sovereign to correct

credit weakness and the full negative economic impact of

COVID-19 is also uncertain.

Jones Gondo

Chart 27: SA’s above-trend credit risk

scoreChart 26: SA is among the high-risk EMs

Table 3: A summary of SA’s credit ratings

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

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 F3

Baa3 BBB- BBB-

Ba1 (neg)

FC+LCBB+ B

BB+ (neg)

FC+LCB

Non-investment

grade

Ba2 BB (stable) LC BB speculative

Ba3 BB- (stable) FC BB-

B1 B+ B+

B2 B B

B3 B- B-

Not prime

Sourc e : Fitc h, S&P ra tings, Moody's, Ne dba nk

Highly speculative

Brazil

Chile China

Colombia

Costa Rica

Croatia

Greece

Hungary

India

Indonesia Mexico

Panama Peru Philippines Russia

South Africa

Thailand

Turkey

Vietnam

0

100

200

300

400

500

600

700

800

A+

(p

osi

tiv

e)

A+

(st

ab

le)

A+

(n

eg

ati

ve

)

A (

po

siti

ve

)

A (

sta

ble

)

A (

neg

ati

ve)

A-

(po

siti

ve)

A-

(sta

ble

)

A-

(ne

gat

ive

)

BB

B+

(po

siti

ve)

BB

B+

(sta

ble

)

BB

B+…

BB

B (

po

sitv

e)

BB

B (

stab

le)

BB

B (

ne

gat

ive

)

BB

B-

(po

siti

ve

)

BB

B-

(sta

ble

)

BB

B-

(ne

gati

ve)

BB

+ (

po

siti

ve

)

BB

+ (

sta

ble

)

BB

+ (

ne

ga

tive

)

BB

(p

osi

tve

)

BB

(st

ab

le)

BB

(n

ega

tive

)

BB

- (p

osi

tive

)

BB

- (s

tab

le)

BB

- (n

eg

ativ

e)

B+

(po

siti

ve)

B+

(sta

ble

)

B+

(ne

gati

ve)

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

HUNGARY

INDIA

INDONESIAMEXICO

PANAMAPERU PHILIPPINES

RUSSIA

SA

THAILAND

TURKEY

VIETNAM

AVERAGE

y = 15.428e0.0536x

0

100

200

300

400

500

600

700

800

30 35 40 45 50 55 60 65

bp

s

EIU country risk score

Country risk vs 5Y CDS spreadHigh risk

Low risk

SA’S BOND MARKET

Local bond-market rallies after SARB intervention and WGBI rebalance, global risk

sentiment helps

• The SAGB yield curve bull flattened in the past month, with some

points rallying by more than 100bps as offshore demand for SA

bonds picked up following the finalisation of the WGBI rebalance.

Buying was concentrated in the long-end portion of the curve,

while the front-end yields were impacted by a less-dovish SARB

muting future rate cut expectations. Global risk appetite

improved, which helped spur a bull market locally. Furthermore,

the SARB continued with its local bond purchases in the

secondary market, admitting that it has purchased bonds across

the curve and is not focused on any particular region. In April, the

SARB purchased R11.4bn worth of bonds in the secondary

market, roughly half of all primary-market issuance that month. It

has also noted that going forward, it will scrutinise the yield curve

in order to identify mis-priced or illiquid bonds, and attempt to

correct that via its secondary-market purchases.

• Our fair value estimates are based on a US 10-year yield of 1.4%

(versus Bloomberg consensus of 1.2%) and a US 30-year yield

of 2.1%. As such, our fair value estimate of SA’s 10y R2030

bond yield is 9.0%, unchanged from our last update, as the rise

in credit risk offset the lower US 10-year yield estimate. We see

our fair value estimate as a six- to 12-month view. In stark

contrast, fair value estimates of long-end yields have risen as a

result of the more material rise in credit risk. Our 30y fair value

yield is now 10.30%, compared to 10.00% in our last update.

• In the past month, we have seen the 10y bond yield fall below

our fair value level of 9.0%, while the R2048 has fallen closer to

our 10.3% target. We will likely relook at our valuation in the

coming weeks, as US inflation has decoupled from long-run

trends and this is expected to persist over the medium term.

Chart 28: FRA curve pares back rate cut

expectations after SARB May meeting

Chart 29: Yields sharply lower as SARB

steps in, risk appetite improves

Chart 30: Short-end portion of the curve

sharply lower after recent cuts Chart 31: IIF: EM portfolio flows tracker

-17%

-91% -93% -117% -111% -129% -129%-93% -85%

13%75%

179%

263%

-700%

-600%

-500%

-400%

-300%

-200%

-100%

0%

100%

200%

300%

400%

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

Pro

ba

bil

ity

FRA probabilities of a 25bps move by the SARB

Current Last meeting Apr-20 meeting

-160

-140

-120

-100

-80

-60

-40

-20

0

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

1

2

3

4

5

6

7

2015/02/16 2016/02/16 2017/02/16 2018/02/16 2019/02/16 2020/02/16

Short end

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


THE RAND AND KEY RISKS

USDZAR remains weak but stabilises in April and May

• The USDZAR depreciated by 13.7% in March and by a further

2.4% in April as markets quickly assessed the wider effect of the

pandemic, which has forced lockdowns in many countries. In

May, following an improvement in global risk sentiment and a

recovery in the oil price, the USDZAR rallied by 5.3%, falling to

the current R17.38/USD, from a peak of over R19.00/USD in

April.

• We expected substantial rand weakness into mid-year, which

has transpired (even though the weakness has come faster than

we had expected). At the same time, we forecast a recovery in

the rand below 15.00 against the USD in 2021 following the

weakness. We maintain this view.

• If Brent crude oil goes back to USD45/bbl, the relationship

between the currency and oil suggests the rand should move

closer to 15.50 against the USD. Although it would be naïve to

assume that the rand will not be volatile, we continue to hold the

view that the rand has reached a broad top, and maintain a

target of 15.00 against the USD. We think of this as a six- to

nine-month view (see Rand: Oil as an indicator of currency

direction, dated 15 May 2020).

• Our base case is that capital will return to EM local bond markets

in search of higher real returns that would in turn aid EM

currencies. Capital returned after the 1998 Asian crisis, the 2001

US recession, and the 2008 global financial crisis (GFC). The

likelihood that it will return after this recession is high, in our view.


Chart 32: ZAR REER falls below fair value

Chart 33: Weaker ZAR a consequence of

global pandemic

Chart 34: Lower oil price suggests a

weaker rand exchange rate, vice versa for

higher oil price

Chart 35: Heat map suggests that the rand

is likely to remain volatile

60

65

70

75

80

85

90

95

100

105

110

2000

/03/

01

2000

/12/

01

2001

/09/

01

20

02

/06

/01

20

03

/03

/01

20

03

/12

/01

20

04

/09

/01

2005

/06/

01

2006

/03/

01

2006

/12/

01

2007

/09/

01

20

08

/06

/01

20

09

/03

/01

20

09

/12

/01

20

10

/09

/01

2011

/06/

01

2012

/03/

01

2012

/12/

01

2013

/09/

01

20

14

/06

/01

20

15

/03

/01

20

15

/12

/01

20

16

/09

/01

2017

/06/

01

2018

/03/

01

2018

/12/

01

2019

/09/

01

Ind

ex

ZAR REER

REER Average 1 stddev

Weaker ZAR

Stronger ZAR

y = -0.0708x + 17.846

10

11

12

13

14

15

16

17

18

19

20

10 20 30 40 50 60 70 80 90

US

DZ

AR

Oil (USD/bbl.)

USDZAR vs. oil

He a tma p: Long- te rm monthly tre nd

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

USDZAR

GBPZAR

EURZAR

Red= ZAR weakness

https://www.nedbank.co.za/content/dam/nedbank-crp/reports/FXatGlance/2020/SA%20FX_200515.pdf

THE RAND AND KEY RISKS

Risk appetite recovers in May, spurring EM FX rally

• Market conditions deteriorated rapidly in March as the spread of

the virus increased and countries enforced lockdowns to try to

limit it. This caused a wave of panic selling across asset classes

as markets assessed the possibility of a deep contraction in

global growth, worse than that of 2008. Much of the same

persisted in April, with many high-beta EM currencies remaining

under pressure. However, with more countries easing lockdown

restrictions, global trade starting to pick up and demand for oil

rising along with the oil price, risk sentiment improved markedly

in May, with most EM FX rallying as a result. The USDZAR is the

fourth-best performer in its EM peer basket, having appreciated

5.3% over the month. The Mexican peso is the best performer,

appreciating 8.2% in May.

• For the YTD, however, the BRL and ZAR are the worst-

performing currencies against the USD in the EM peer basket,

having depreciated 25.1% and 19.7%, respectively.

• In early April, we indicated our belief that the rand had found a

broad top and that many of the negative events that rocked the

global and domestic economies – including WGBI exclusion –

were largely priced into the currency (see our note SA FX:

USDZAR reaching a broad top, dated 9 April 2020). Since then,

WGBI exclusion has passed without much fanfare, and the rand

has broadly traded in the 18.00-19.00 range. Although volatility

will likely remain high, we continue to hold the view that the rand

has reached a broad top, and maintain a target of 15.00 against

the USD. We think of this as a six- to nine-month view.

• At current levels, much negativity has already been priced into

the rand. With broad-based EM FX weakness having been

prompted by a global wave of selling and risk-off sentiment,

should capital flows start to emerge and global trade pick up, the

ZAR would benefit from such flows, particularly given the fact

that SA real bond yields are among the world’s highest and most

attractive.


Chart 36: Both ZAR and EM FX recover

marginally in May

Chart 37: Liquid EM commodity currencies

weaken the most

Chart 38: EM FX still vulnerable on the

back of COVID-19-related risk-off

Chart 39: Foreign capital flows are an

extension of ZAR weakness in 2020

0.8

1.3

1.8

2.3

2.8

3.3

3.8

4.3

2014/12/05 2015/12/05 2016/12/05 2017/12/05 2018/12/05 2019/12/05

EM FX based to 100 at January 2013

ZAR TRY BRL MXN RUB INR

Weaker EM FX

Stronger EM FX (300 000)

(250 000)

(200 000)

(150 000)

(100 000)

(50 000)

-

50 000

100 000

20

17

/02

/22

20

17

/04

/22

20

17

/06

/22

20

17

/08

/22

20

17

/10

/22

20

17

/12

/22

20

18

/02

/22

20

18

/04

/22

20

18

/06

/22

20

18

/08

/22

20

18

/10

/22

20

18

/12

/22

20

19

/02

/22

20

19

/04

/22

20

19

/06

/22

20

19

/08

/22

20

19

/10

/22

20

19

/12

/22

20

20

/02

/22

20

20

/04

/22

Foreign capital flows: cumulative since 2017 (Rm)

Cumulative bonds Cumulative equities

0,95

1,00

1,05

1,10

1,15

1,20

1,25

1,30

1,35

Ind

ex

USDZAR USDBRLUSDMXN

https://www.nedbank.co.za/content/dam/nedbank-crp/reports/FXatGlance/2020/SA%20FX_200409.pdf

OTHER MARKETS

Equity markets rally in April and May following unprecedented stimulus measures

• All major equity indices recorded sharp losses in January and

extended sharply lower in February on fears that the coronavirus

outbreak could weaken global growth and hamper trade activity

and corporate earnings. The equity-market slump intensified in

March as the coronavirus pandemic forced trade stoppages and

border lockdowns, and reduced global productivity levels. A

global recession is imminent, propelled by large developed-

market (DM) economies. As a result of unprecedented and large-

scale stimulus measures by DM countries, global equity markets

stabilised in April and May. A greater number of countries easing

lockdown restrictions or ending the lockdown entirely, has

spurred an improvement in investor sentiment, with expectations

for global trade activity to begin to recover gradually in the

coming months. However, most major indices are still below

levels seen before the coronavirus outbreak.

• For the YTD, the JSE All Share Index has lost 29% in USD

terms, while the UK’s FTSE has lost 23%. The best-performing

equity indices for the YTD are the Japanese Nikkei, which has

recovered sharply off its lows in March – for the YTD, it is down

just 4.3% in USD terms. The Nikkei is followed closely by the

S&P 500 Index, which has lost 6.1% YTD.

• Deep recessions in major DM economies are likely to weigh on

company earnings, which means there will likely be more pain to

follow in the coming months as the economic reality of the

pandemic begins to surface. The recovery process may take

years, in our view, if stimulus measures do not filter into the

broader economy. Worse still would be the slow recovery in

global supply chains in the coming months as manufacturers and

suppliers begin to adapt to these challenges. Because the

outbreak has hampered manufacturing activity and global trade

directly, its impact on global growth and earnings should not be

underestimated. Hence, we have seen equity indices experience

their sharpest declines since the 2008 GFC. Small businesses

may exit supply chains permanently if there is no government

support during the crisis.


Chart 40: Fuel costs have followed Brent

sharply lower recently Chart 41: IIF: EM stress episodes

Chart 42: Global equity markets recover

on the back of stimulus measures

Chart 43: Equity indices (local-currency

terms) under pressure recently

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

Jan

2017

= 1

00

SA vs Major equity indices

SA Australia Canada US UK

Eurozone Japan China MSCI EM MSCI World

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

Jan

2017

= 1

00

SA Top 40 Index vs benchmarks

SA MSCI EM MSCI World

APPENDICES

Calendar of event risks – 2020

• 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.

*Indicative

Source: Media reports, Bloomberg

January February March

04 Jan – SA SACCI business confidence*

11 Jan – ANC 08 January statement

11 Jan – Taiwan general election

15 Jan – Potential signing of US-CH trade deal*

16 Jan – SARB MPC meeting

21 Jan – BoJ MPC meeting

23 Jan – ECB meeting

29 Jan – Fed FOMC meeting

30 Jan – BoE meeting

31 Jan – UK membership of the EU will cease

03-04 Feb – SA mining indaba

05 Feb – SA SACCI business confidence*

13 Feb – SA State of the Nation Address (SONA2020)

21 Feb – Iranian legislative elections

26 Feb – SA budget speech

03 Mar – SA 4Q GDP

05 Mar – SA SACCI business confidence*

12 Mar – ECB meeting

18 Mar – Fed FOMC meeting

19 Mar – SARB MPC meeting

19 Mar – BoJ meeting

26 Mar – BoE meeting

27 Mar – Moody’s credit rating review of SA

April May June

Egyptian parliamentary elections Apr – May

05 Apr – SA SACCI business confidence*

28 Apr – BoJ meeting

29 Apr – Fed FOMC meeting

30 Apr – ECB meeting

May – Fitch credit rating review of SA*

05 May – SA SACCI business confidence*

07 May – UK local elections

07 May – BoE meeting

21 May – SARB MPC meeting

22 May – S&P credit rating review of SA

ANC NGC Meeting*

04 Jun – ECB meeting

04 Jun – SA 1Q GDP*

05 Jun – SA SACCI business confidence*

07 Jun – Mexican local elections

10 Jun – Fed FOMC meeting

16 Jun – BoJ meeting

18 Jun – BoE meeting

July August September

05 Jul – SA SACCI business confidence*

16 Jul – ECB meeting

22 Jul – BoJ meeting

23 Jul – SARB MPC meeting

29 Jul – Fed FOMC meeting

Aug – Fed’s Jackson Hole symposium*

05 Aug – SA SACCI business confidence*

06 Aug – BoE meeting

05 Sep – SA SACCI business confidence*

05 Sep – SA 2Q GDP*

10 Sep – ECB meeting

16 Sep – Fed FOMC meeting

17 Sep – SARB MPC meeting

17 Sep – BoE and BoJ meetings

29 Sep – First presidential debate US

October November December

05 Oct – SA SACCI business confidence*

07 Oct – Vice presidential debate US

15 Oct – Second presidential debate US

21 Oct – SA MBTPS*

22 Oct – Third presidential debate US

Nov – Fitch credit rating review of SA*

03 Nov – US presidential elections

05 Nov – BoE and Fed FOMC meetings

05 Nov – SA SACCI business confidence*

19 Nov – SARB MPC meeting

20 Nov – Moody’s credit rating review of SA

20 Nov – S&P credit rating review of SA

21 Nov – Last date for New Zealand general election

05 Dec – SA SACCI business confidence*

05 Dec – SA 3Q GDP*

10 Dec – ECB meeting

31 Dec – Deadline for UK-EU trade agreement post Brexit

APPENDICES

Upcoming economic data releases


Date Time Indicator Period Previous

06/03/2020 09:15 Standard Bank South Africa PMI May 35.1

06/05/2020 08:00 Gross Reserves May $53.00b 14 - 16 January 2020

06/05/2020 08:00 Net Reserves May $45.47b 17 - 19 March 2020

06/05/2020 12-Jun SACCI Business Confidence May 77.8 14 April 2020

06/09/2020 11:30 South Africa Unemployment 1Q 29.10% 19 - 21 May 2020

06/10/2020 17-Jun BER Business Confidence 2Q 18 21 - 23 July 2020

06/10/2020 14-Jun BER Consumer Confidence 2Q -9 15 - 17 September 2020

06/11/2020 11:30 Mining Production YoY Apr 7.00% 19 - 19 November 2020

06/11/2020 11:30 Mining Production MoM Apr -1.00%

06/11/2020 13:00 Manufacturing Prod NSA YoY Apr -2.10%

06/11/2020 13:00 Manufacturing Prod SA MoM Apr -2.30%

06/17/2020 10:00 CPI YoY May -- Source: SARB

06/17/2020 10:00 CPI MoM May --

06/17/2020 10:00 CPI Core YoY May --

06/17/2020 13:00 Retail Sales Constant YoY Apr 2.00%

06/17/2020 13:00 Retail Sales MoM Apr -0.40%

06/23/2020 09:00 Leading Indicator Apr 104

06/24/2020 10:00 CPI YoY Apr 4.10%

06/24/2020 10:00 CPI MoM Apr 0.30%

06/24/2020 10:00 CPI Core YoY Apr 3.70%

06/25/2020 11:30 PPI YoY May 3.30%

06/25/2020 11:30 PPI MoM May 0.10%

06/30/2020 08:00 Money Supply M3 YoY May 10.47%

06/30/2020 08:00 Private Sector Credit YoY May 7.37%

06/30/2020 11:30 GDP Annualized QoQ 1Q -1.40%

06/30/2020 11:30 GDP YoY 1Q -0.50%

06/30/2020 14:00 Trade Balance Rand May -35.0b

06/30/2020 14:00 Monthly Budget Balance May -51.2b

Source: Nedbank, Bloomberg

SARB MPC meeting dates – 2020

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

reduced to 4.25% (previously 5.25%) following an emergency MPC meeting

in April 2020

Economic data releases

APPENDICES

Nedbank Group forecasts

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

GDP q/q SAAR 0.20 -5.21 -43.83 45.81 4.05 -7.00 2.18 2.42 1.18 0.80 2.90 -0.18 2.24 1.67 1.96 1.20

Current account as a % of GDP -3.00 -1.70 -1.20 -1.30

Gold $/oz. (EOP) 1523.57 1616.97 1608.89 1703.81 1668.03 1668.03 1616.32 1624.40 1609.78 1572.76 1572.76 1593.20 1583.64 1581.27 1630.29 1630.29

Exchange rates (EOP)

USDZAR 14.128 18.029 17.488 17.086 17.257 17.257 17.619 17.355 17.650 17.226 17.226 17.847 18.025 17.646 17.541 17.541

EURZAR 15.838 19.839 19.016 18.747 19.126 19.126 19.334 18.472 19.111 18.559 18.559 19.151 19.537 19.146 18.824 18.824

GBPZAR 18.532 22.205 21.283 20.731 20.309 20.309 20.490 20.345 20.629 19.974 19.974 20.797 21.047 20.401 20.178 20.178

AUDZAR 9.308 11.147 10.674 10.555 10.608 10.608 10.718 10.884 10.976 11.252 11.252 11.451 11.508 11.760 11.832 11.832

ZARJPY 7.692 6.011 6.179 6.305 6.274 6.274 6.225 6.301 6.251 6.456 6.456 6.201 6.139 6.302 6.372 6.372

GBPUSD 1.312 1.232 1.217 1.213 1.177 1.177 1.163 1.172 1.169 1.160 1.160 1.165 1.168 1.156 1.150 1.150

EURUSD 1.121 1.100 1.087 1.097 1.108 1.108 1.097 1.064 1.083 1.077 1.077 1.073 1.084 1.085 1.073 1.073

USDJPY 108.67 108.38 108.05 107.73 108.27 108.27 109.68 109.35 110.33 111.21 111.21 110.66 110.66 111.21 111.77 111.77

USDCNY 7.060 6.724 6.868 7.132 7.060 7.060 7.094 7.101 7.116 7.123 7.123 7.130 7.166 7.180 7.187 7.187

USDCHF 0.984 0.963 0.975 0.958 0.939 0.939 0.943 0.958 0.925 0.928 0.928 0.930 0.911 0.909 0.914 0.914

USDAUD 1.518 1.617 1.638 1.619 1.627 1.627 1.644 1.595 1.608 1.531 1.531 1.558 1.566 1.500 1.482 1.482

SA Interest rates (EOP)

3-month JIBAR 6.80 5.61 4.11 4.09 4.10 4.10 4.11 4.12 4.38 4.64 4.64 4.90 4.88 4.87 4.88 4.88

Prime 10.00 8.75 7.25 7.25 7.25 7.25 7.25 7.25 7.50 7.75 7.75 8.00 8.00 8.00 8.00 8.00

Long bond (10-yr) 8.96 12.11 9.75 9.03 9.10 9.10 8.40 8.50 8.13 8.25 8.25 8.23 7.90 7.69 7.65 7.65

CPI % (EOP) 4.02 4.14 2.60 2.79 2.93 2.93 3.92 4.17 4.24 4.29 4.29 4.33 3.84 3.88 3.82 3.82

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.

2019 2020 2020 2021 2021 2022 2022

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

APPENDICES

Other SA charts

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

Chart 44: SACCI Consumer Confidence

Index (monthly)

Chart 49: SA GDP growth q/q % SAAR

(quarterly) Chart 48: SA 10y generic bond yield

(monthly) Chart 47: SA repo rate (monthly)


-20

-15

-10

-5

0

5

10

15

20

25

30

Ind

ex

leve

l

SACCI Consumer confidence index

30

35

40

45

50

55

60

Ind

ex

leve

l

BER Manufacturing PMI

Negative

Pos itive

2

3

4

5

6

7

8

%

SA CPI (y/y %)

3.5

4

4.5

5

5.5

6

6.5

7

7.5

%

SA Repo rate (%)

6

7

8

9

10

11

12

%

SA 10y bond yield (%)

-8

-6

-4

-2

0

2

4

6

8

10

%

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

4 qtr moving average

LOCKDOWN SCENARIOS AND IMPACT ON SA GROWTH

An extension of the lockdown would subtract a further 4% from GDP in 2020

• In March, before SA’s lockdown was announced, we put the

country’s growth forecast for 2020 at -1.8% y/y. This considered

mainly the negative trade shock but did not include a full-scale

lockdown of the economy. Now, with the country heading for five

weeks of total lockdown and then a staggered, risk-adjusted

opening of the economy, we expect growth to register -7.0% y/y

in 2020 (Chart 51).

• The main contributors towards the steep decline in GDP in 2020

are household consumption expenditure, inventories, gross fixed

capital formation and net exports, as the decline in exports more

than offsets the decline in imports. The subsequent recovery

projected in 2021 would depend on the government’s ability to

support households and small businesses during the crisis in

2020, to enable businesses to resume operations fully in 2021.

• A risk-adjusted approach to balance the spread of the virus and

growth concerns is a cautious one. This also implies that one

must assume the authorities would rather err on the side of

caution than open up the economy too fast. As a result, we

believe risk to our growth forecast remains firmly to the

downside.

• Unfortunately, our estimates suggest that the negative impact of

lockdowns on growth is non-linear, i.e., the longer the lockdown,

the greater the negative impact on the economy as firms fall

permanently out of the supply chain and jobs are permanently

lost.

• For example, even if economic activity returns to normal by

1Q21, should South Africa go back into a full lockdown again for

another three weeks at any point this year (putting the total

number of weeks in full lockdown at eight weeks), our estimates

suggest that growth is likely to drop by another 4%, to at least

-11% y/y in 2020 (Chart 51).

Source: Nedbank CIB Markets Research

Chart 50: SA GDP growth estimate – The

impact of the lockdown and a staggered

approach

Chart 51: More downside risk – Another 3

weeks of lockdown could see growth

below -11% y/y

-1,8

1,7 2,1

-5,2

3,0

0,8

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

2020 2021 2022

% (

y/y

)

Additional growth lost due to 5-week lockdown with normality by 1Q:21

Pre-lockdown March 2020

-1,8

1,7 2,1

-5,2

3,00,8

-4,0

1,7

1,0

-12,0

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

2020 2021 2022

% (

y/y

)

Further growth lost due to additional 3-week lockdown with normality by 1Q:22

Additional growth lost due to 5-week lockdown with normality by 1Q:21

Pre-lockdown March 2020

Disclaimer – The views and observations in this report represent the analyst’s own and not the Nedbank Group house view. Nedbank

Group house view forecasts are available on page 18 of this report.

reezwana sumad …...page 5 global developments the world is already in a recession, as per the imf...

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