1

Market Brief

15 February 2018

ZAR: The Week in Review

Low High

Friday 12.0075 12.1658 • The rand was under pressure from a strong dollar and general risk-off

sentiment on Friday, but firmed in late trade as investors priced in the

possibility of a weekend announcement on President Zuma's future.

Bond prices edged lower and stocks ended with sharp losses after a

week's turbulent trading, with the JSE All Share index closing 1.29%

down.

Monday 11.8659 12.0735

• The rand, stocks and bonds gained on improved risk sentiment with

higher yielding emerging- and commodity-linked currencies. The rand

settled around R11.9275 after a volatile session on uncertainty about

President Zuma's future, having touched R11.88 briefly after a rumour

that President Zuma had agreed to step down, before this was

dismissed as "fake news".

Tuesday 11.8673 11.9979 • The rand was supported by a soft dollar and dipped below R11.90 to

R11.8775, but gave up gains after the ANC said it had not given

President Zuma a deadline to accept its decision to recall him and

resign. This left markets with a lot of uncertainty and the rand weakened

to R11.9975 before settling around R11.9750. Stocks rebounded,

tracking emerging market peers.

Wednesday 11.6500 11.9687 • Wednesday was all about developments around President Zuma, with

the rand firming, bonds hitting a one-week best and equities also

gaining. The rand settled around R11.8750, but rallied in afterhours

trade as President Zuma announced his resignation late night and the

rand touched a strongest around R11.66 before giving up some gains.

Thursday 11.6025* 11.7427* • The rand extended overnight gains, with Cyril Ramaphosa voted in as

SA’s new president, further supported by a soft dollar. Gains were

capped by importers.

Highs and lows from Thomson Reuters. *

. Weekly low Weekly high

Dollar 11.6025 12.0735 Sterling 16.3143 16.6807 Euro 14.4857 14.8182

Source: Thomson Reuters

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Currency Outlook

Central Banks

• Markets remain tense amid rising concerns about upside risks to inflation and

interest rates. Signs of normalisations however remains modest for now.

• There appears to be confusion around the dollar’s movements and direction.

Despite increased expectations for Fed rate hikes, the dollar seems to be on the

decline.

Risk Sentiment

Emerging Markets

• Risk sentiment has improved since the recent volatility which saw a sell-off in

global equity markets, with the VIX index below the 20 mark.

• South Africa has been an emerging market outperformer, largely assisted by

optimism since the election of Ramaphosa as ANC president in December, now

the follow through as President of the country

Credit Ratings • The risk of another ratings downgrade is still substantial.

• Moody’s review is scheduled for the 23rd of March. The Budget announcement

on 21 February will be crucial and may bring some realism re the challenges

faced. Signs of return to fiscal consolidation may assist in helping avoid a ratings

downgrade by Moody’s.

Domestic • The final wrapping up of uncertainty around President Zuma’s position and the

voting in of Cyril Ramaphosa as President on Thursday, set the scene for a new

season in this country’s future. For the rand to continue appreciating, the

optimism needs to be followed up by actions. There are many matters to be

addressed, amongst those fiscal consolidation, the concerning positions of most

state-owned enterprises, economic growth, unemployment, stamping out of

corruption.

Summary

• Global factors, with risk-on sentiment and dollar weakness, is expected to

support further rand gains. Positive domestic political and economic

developments also support, but near-term event risk does exist with the

upcoming budget and Moody’s ratings.

• The rand’s clear break through the R11.80 level, now makes this level a

resistance level. Risk on this side appear to be limited.

• The extent of the rand’s rally may see some consolidation before further gains.

The rand has been trading around R13.66 today, a major support level, with

R11.5430 the next level, thereafter R11.4460.

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Daily ZAR=, EUR= 31/07/2017 - 27/02/2018 (GMT)

Line, ZAR=, Bid(Last)

15/02/2018, 11.6630, -0.0463, (-0.40%)

Line, EUR=, Bid(Last)

15/02/2018, 1.2479, +0.0031, (+0.25%)

Price

/USD

Auto

12.5

13

13.5

14

11.6630Price

USD

Auto

1.18

1.2

1.22

1.2479

Corr, ZAR=, Bid(Last), EUR=, Bid(Last), 25

15/02/2018, 0.810 Value

/USD

Auto

-0.6

-0.3

0

0.3

0.810

07 14 21 28 04 11 18 25 02 09 16 23 30 06 13 20 27 04 11 18 25 01 08 15 22 29 05 12 19 26Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18

ZAR vs EUR ZAR vs Key emerging market currencies YTD 2018

Source: Thomson Reuters Source: Thomson Reuters, Andisa Capital

USDZAR EURZAR

Source: Thomson Reuters, Andisa Capital Source: Thomson Reuters, Andisa Capital

ZAR CNY RUB BRL INR TRY

7 day change 4.24% -0.33% 2.80% 2.27% 0.60% 1.28% 30 day change 5.16% 1.51% -0.53% 0.36% 0.16% 0.65% 12 month change 10.62% 8.24% 0.59% -4.84% 4.63% -3.00%

Source: Thomson Reuters, Andisa Capital

Local Data

Unemployment • 2017’s fourth quarter Unemployment Rate fell 1.0% from quarter three to 26.7%,

while the expanded definition of unemployment, which includes those who have

stopped looking for work fell 0.5% to 36.3% over the same period.

• Stats SA’s Quarterly Labour Force Survey showed 5.9 million people were left

without jobs as compared with 6.2 million the previous quarter.

• There were substantial job losses in the formal and private household sectors

which were replaced by informal and agricultural sector jobs.

• However, the slight improvements seen are likely to be attributed to a cyclical

increase in labour demand over the Christmas period as well as a decrease in

the labour force as more people stop looking for work.

Retail Sales • Retail Sales y/y rose in December, beating analyst expectations to print at 5.3%,

while November’s data was revised downward by 0.3% to 7.9%.

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• The ‘General dealer’ and ‘food, beverage and tobacco’ categories didn’t show

major gains compared with other categories.

Primary Consumer

Sentiment Index

• The Thompson Reuters/Ipsos Primary Consumer Sentiment Index for February

has risen for the third consecutive month to 45.80, an increase of 1.34 from the

previous month.

Interest Rate Outlook

Rate Outlook

• Political stability seems to be on the cards as the new President of South Africa,

Cyril Ramaphosa takes control. Now the budget speech taking place next week

will be the main focus as rating agency Moody’s still has the country under review

for a downgrade. A strong and clear budget that highlights fiscal discipline and

clear policy is expected to be delivered by the Finance Minister.

• Although some major events have played out, inflation data as well as the

decision by Moody’s are prominent factors for the SARB to consider before a key

rate decision is made in March.

• Most banks are of the view that rates will remain unchanged at the next MPC

meeting, although rate cuts may come into view later during the year.

International News

US

CPI • The Labor Department said its Consumer Price Index increased 0.5% last month.

That was higher than estimates for a 0.3% increase and the 0.2% in December.

The y/y increase in the CPI was unchanged at 2.1%.

• The core consumer price index, which excludes volatile food and energy costs,

rose 0.3% in January from the prior month, the biggest advance in a year and

exceeding the 0.2% median estimate of economists.

• Part of the CPI gain resulted from a 1.7% monthly jump in apparel prices, the

biggest increase since 1990. Women’s apparel costs rose a record 3.4%. Other

categories contributing to the increase in CPI included rents and owners’

equivalent rent, which both rose 0.3% from December; medical care, up 0.4%;

and motor vehicle insurance, which advanced 1.3%, the most since 2001.

Retail Sales • The Commerce Department said on Wednesday that retail sales decreased 0.3%

last month, the largest decline since February 2017, as households cut back on

purchases of motor vehicles and building materials.

• Data for December was revised to show sales unchanged instead of rising 0.4%

as previously reported.

• Excluding automobiles, gasoline, building materials and food services, retail

sales were unchanged last month after a downwardly revised 0.2% drop in

December. These so-called core retail sales correspond most closely with the

consumer spending component of gross domestic product.

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Euro zone

GDP • Seasonally adjusted GDP rose by 0.6% in the euro area during the fourth quarter

of 2017, compared with the previous quarter, according to a flash estimate

published by Eurostat. In the third quarter of 2017, GDP grew by 0.7%.

• On a yearly basis, GDP growth eased slightly to 2.7% from 2.8% in the preceding

period.

• For the whole year 2017, GDP grew 2.5%, the fastest in a decade.

UK

CPI • The Office for National Statistics said on Tuesday that the UK's Consumer Price

Index (CPI) was 3% in January, unchanged from December 2017.

• The largest downward contribution to change in the rate came from prices for

motor fuels, which rose by less than they did a year ago.

• The main upward effect came from prices for a range of recreational and cultural

goods and services, in particular, admissions to attractions such as zoos and

gardens, for which prices fell by less than they did a year ago.

• The higher than expected inflation figures lends some weight to the Bank of

England’s hints of rising interest rates.

Precious Metals

Gold

Price Movement • Gold rose to $1 356/oz on Thursday supported by a weaker dollar and as

investors bought the yellow metal as a hedge against inflation after a

faster-than-expected rise in US consumer prices last month.

SPDR Gold Trust • Holdings in the SPDR Gold Trust rose 3 tonnes this week.

Net Futures Position • The net futures position in gold fell 1.962moz to 20.545moz to the week ending

6 February.

• Gross longs decreased by 3.088moz to 31.611moz, while shorts decreased by

1.125moz to 11.066moz.

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Daily Gold price vs 100 day moving average 28/04/2017 - 02/03/2018 (GMT)

Line, XAU=, Bid(Last)

15/02/2018, 1,351.9900, +1.3099, (+0.10%)

SMA, XAU=, Bid(Last), 100

15/02/2018, 1,294.9549

Price

USD

Ozs

Auto

1,220

1,230

1,240

1,250

1,260

1,270

1,280

1,290

1,300

1,310

1,320

1,330

1,340

1,351.9900

1,294.9549

01 16 01 16 03 17 01 16 01 18 02 16 01 16 01 18 01 16 01 16 01Q2 2017 Q3 2017 Q4 2017 Q1 2018

Daily Gold price vs dollar index 21/03/2017 - 06/03/2018 (GMT)

Line, XAU=, Bid(Last)

15/02/2018, 1,352.1400, +1.4599, (+0.11%)

Line, .DXY, Trade Price(Last)

15/02/2018, 88.800, -0.321, (-0.36%)

Price

USD

Ozs

Auto

1,230

1,260

1,290

1,352.1400Price

USD

Auto

90

92

94

96

98

88.800

Corr, XAU=, Bid(Last), .DXY, Trade Price(Last), 25

15/02/2018, -0.602 Value

USD

Ozs

Auto

-0.9

-0.6

-0.3

0

-0.602

03 17 01 16 01 16 03 17 01 16 01 18 02 16 01 16 01 18 01 16 01 16 01Q2 2017 Q3 2017 Q4 2017 Q1 2018

Daily =GOLD 22/01/2017 - 05/03/2018 (UTC)

Line, =GOLD, Default(Last), 13/02/2018, 824 Value

Auto

790

795

800

805

810

815

820

825

830

835

840

845

850

855

860

865870

824

01 16 01 16 01 16 01 16 01 16 01 16 01 16 01 16 01 16 01 16 01 16 01 16 01 16 01Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

Gold price vs 100 day moving average Gold price vs dollar index

Source: Thomson Reuters Source: Thomson Reuters

Net gold futures position SPDR Gold Trust holdings

Source: CFTC, HSBC Source: Thomson Reuters

PGMs

Price Movement • Silver and palladium both reached one-week highs on Thursday of $17.00/oz

and $1 017/oz, respectively.

• Platinum reached a two-week high of $1 009.50/oz.

• All moves were driven by a weaker dollar.

Gold Platinum Palladium Silver

7 day change 2.41% 2.84% 5.37% 2.49% 30 day change 1.74% -0.15% -7.24% -2.17% 12 month change 9.59% -1.32% 28.51% -6.45%

Source: Thomson Reuters, Andisa Capital

7

Daily 3m copper price vs 100 day moving average 02/05/2017 - 01/03/2018 (LON)

Line, MCU3, Trade Price(Last)

14/02/2018, 7,163.00N/A, N/A

SMA, MCU3, Trade Price(Last), 100

14/02/2018, 6,904.31

Price

USD

T

Auto

5,5005,600

5,700

5,800

5,900

6,000

6,100

6,200

6,300

6,400

6,500

6,600

6,700

6,800

6,900

7,0007,100

7,163.00

6,904.31

02 16 01 16 03 17 01 16 01 18 02 16 01 16 01 18 02 16 01 16 01May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18

Daily LME copper stocks 28/07/2016 - 14/03/2018 (GMT)

Line, MCUSTX-TOTAL, Last Quote(Last)

13/02/2018, 333,625-100, N/A

Value

T

Auto

200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

360,000

333,625

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb MarQ3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

Base Metals

Copper

Price Movement • 3m copper rose to $7 041/t earlier this week on a weaker dollar and more stable

global markets that encouraged a return to riskier assets.

• The price was also supported by traders taking up new positions before the

Shanghai Futures Exchange closes for a week-long Lunar Year Holiday. The

move came despite a recent build in copper inventories ahead of the Lunar New

Year holidays.

• The base metal rose to $7 195/t on Thursday on a weaker dollar and robust

prospects for global growth.

Production • Chilean mining company Antofagasta received environmental approval for a

major $1.1 billion revamp of its Los Pelambres copper mine, the regional

government of Coquimbo said on Wednesday.

• The three-stage infrastructure upgrade, unveiled in 2016, seeks to maintain the

mine's copper output at approximately 400 000 tonnes of copper annually.

3m copper price vs 100 day moving average LME copper stocks

Source: Thomson Reuters Source: Thomson Reuters

Nickel

Price Movements • 3m nickel rose to 14 245/t on Thursday, its highest in two and a half years, as

the dollar weakened.

• According to Societe Generale analyst Robin Bhar, the price was also supported

by stronger than expected inflation in the United States which spurred buying of

equities and hard assets including metals, which protect against value erosion.

Outlook • A combination of surging China imports, tighter supplies and fund interest are

expected to sustain prices of nickel.

• "The fundamental story for nickel has started off well and it is looking good for at

least the next couple of years," said Wood Mackenzie analyst Adrian Gardner.

• Wood Mackenzie forecasts a deficit of between 80 000 90 000 tonnes this year

following a deficit of similar levels in 2017.

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Daily 3m nickel price vs 100 day moving average 28/04/2017 - 01/03/2018 (LON)

Line, MNI3, Trade Price(Last)

14/02/2018, 14,100N/A, N/A

SMA, MNI3, Trade Price(Last), 100

14/02/2018, 12,056

Price

USD

T

Auto

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,100

12,056

02 16 01 16 03 17 01 16 01 18 02 16 01 16 01 18 02 16 01 16 01May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18

Daily LME nickel stocks 20/05/2016 - 18/03/2018 (GMT)

Line, MNISTX-TOTAL, Last Quote(Last)

13/02/2018, 338,652+1,056, N/A

Value

T

Auto

340,000

345,000

350,000

355,000

360,000

365,000

370,000

375,000

380,000

385,000

390,000

395,000

400,000

338,652

J J A S O N D J F M A M J J A S O N D J F MQ2 16 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

• The shortfall is likely to be particularly acute in China, which accounts for about

half of global consumption estimated at around 2.1 million tonnes this year but

where an environmental crackdown has shut capacity.

• It is expected to ramp up imports. Latest data shows China's nickel imports more

than doubled in December from a year earlier to 41 315 tonnes.

• "There is still a decent amount of upside for prices from here," said ETF

Securities commodities strategist Nitesh Shah, citing declining stocks and higher

demand in China.

• Also helping nickel is the US currency's slide to three-year lows, making

dollar-denominated commodities cheaper for holders of other currencies; a

relationship used by funds that trade using buy and sell signals from numerical

models.

• Further supporting nickel is buying by some funds on the expectation of rising

demand for the batteries used to power electric vehicles.

• Wood Mackenzie forecasts nickel usage in EV batteries at between

60 000-80 000 tonnes this year and 220 000 tonnes in 2025.

• However, stocks of nickel briquette -- easily crushed into small particles and

dissolved in sulphuric acid to make nickel sulphate used in lithium-ion

rechargeable batteries -- in LME warehouses are still elevated.

• Another threat to the current rally is the likelihood of higher production from

Indonesia and the Philippines this year after a move by the top producers to pull

back on restrictions targeting their mining sectors.

3m nickel price vs 100 day moving average LME nickel stocks

Source: Thomson Reuters Source: Thomson Reuters

3m copper 3m nickel

7 day change 4.65% 7.31% 30 day change 1.83% 13.62% 12 month change 18.06% 29.00%

Source: Thomson Reuters, Andisa Capital

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Oil

Price Movement • Brent fell to $61.09/bbl earlier this week after the International Energy Agency

forecast supply could outstrip demand.

• Brent rose to $65.15/bbl on Thursday on a weak dollar and Saudi Arabia

comments that it would rather see an undersupplied market than end a deal with

OPEC and Russia to withhold production.

US • US energy companies added 26 oil rigs last week, boosting the count to 791, the

highest since April 2015, General Electric's Baker Hughes energy services.

• US crude inventories climbed by 1.8 million barrels in the week to Feb. 9, to

422.1 million barrels, the Energy Information Administration said on Wednesday

Market Balance

(International Energy

Agency)

• The rise in global oil production, led by the United States, is likely to outpace

growth in demand this year, the International Energy Agency said on Tuesday.

• The IEA raised its forecast for oil demand growth in 2018 to 1.4 million barrels

per day, from a previous projection of 1.3 million bpd, after the International

Monetary Fund upped its estimate of global economic growth for this year and

next.

• However, the rapid rise in output, particularly in the United States, could well

outweigh any pick-up in demand and begin to push up global oil inventories,

which are now within sight of their five-year average.

• US crude output could reach 11 million bpd by the end of this year, according to

estimates from the US Energy Information Administration.

• Oil demand grew at a rate of 1.6 million bpd in 2017 while inventories fell by

154 million barrels, or at a rate of 420 000 bpd. By the year-end inventories were

only 52 million barrels above the five-year average, with stocks of oil products

below that benchmark.

• The IEA said oil prices could be supported even if US production rises, provided

global growth remains strong, or if unplanned supply outages persist.

OPEC • OPEC said on Monday world oil demand would grow faster than expected in

2018 because of a healthy world economy, adding a tailwind to the producer

group's effort to remove a supply glut by cutting output.

• However, the global market will likely return to balance only towards the end of

2018, no earlier than previously thought, as higher prices encourage the

United States and other non-member producers to pump more, OPEC said in a

monthly report.

• OPEC said world oil demand would rise by 1.59 million barrels per day (bpd) this

year, an increase of 60 000 bpd from the previous forecast.

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US oil rigs Global crude oil supply and demand

Source: Thomson Reuters, EIA Source: Thomson Reuters, EIA

Annual change in OPEC and US crude output

Source: Thomson Reuters, EIA

Front-month Brent

7 day change -0.11% 30 day change -7.43% 12 month change 15.18%

Source: Thomson Reuters, Andisa Capital

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Commodities performance YTD 2018

Source: Thomson Reuters, Andisa Capital

Marina van Wyk Isabel Smith Keelan Naidoo Timothy Balkwill

+27(10) 219-2111 +27(10) 219 2112 +27(10) 219-2025 +27(10) 219-2113

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