The Week Ahead

It has been a turbulent week in financial markets with volatility stemming predominantly from Chinese economic data and currency fixing.

Top decliners

Richemont would have suffered at the hands of the bearish sentiment induced, following the Chinese yuan deprecation. Luxury goods (such as those offered by Richemont) become more expensive to the Chinese consumer as the regions domestic currency devalues.

Still in their first quarter of inclusion into the Top 40 index, Capitec and Brait SE occupy the top decliners spots. While no new news has supported the weakness for both stocks this week, the latter (Brait SE) extends the declines realised last week following a disappointing response to a quarterly update released. Shoprite Holdings is set to report FY 2015 results on Wednesday the 19^th of August.

Top gainers

China’s currency devaluation has enhanced fears around the state of economic growth and in turn spurred a surge in safe haven demand, pushing dollar denominated gold to this month’s high. Emerging market currencies have been largely weaker as a result of the yuan induced sentiment, which combined with the move in dollar gold, has provided more favourable conditions (short-term) for local miners of the precious yellow metal. AngloGold Ashanti, the last remaining gold miner in the Top 40 index has as a result significantly outperformed fellow blue chip counters in the week gone by. 

Local Data

Manufacturing production and sales data for June 2015 highlighted a further 0.4% contraction in the manufacturing sector y/y. The figure was however ahead of the 0.65% contraction expected and slower than the contraction of 1.4% realised in the previous month.

International Data

News from China has unsettled markets over the last week to catalyse a renewed round of volatility in the global market place. Weak export data from the region was promptly followed by a decision by the People’s Bank of China (PBOC) to weaken the yuan against the dollar by 1.9% through the currency peg put in place by the PBOC. This currency was deliberately devalued further on Wednesday by 1.6% following worse than expected industrial production data and once again on Thursday by 1.1%.

In Europe, Preliminary GDP data out of Germany showed economic growth of 0.4% q/q, which was slightly below the expected figure which was for 0.5% q/q growth. Flash GDP data out of the Eurozone showed economic growth to be at 0.3% q/q (est. 0.4% q/q).

In the U.S, core retail and retail sales data fell in line with estimates increasing by 0.4% and 0.6% m/m respectively. Unemployment claims data was slightly worse than the consensus of estimates, with 274000 people filing for benefits in the previous week (est. 272000).

The week ahead

The new week will have an elevated propensity for volatility on Wednesday when the details of the last U.S. Federal Open Market Committee (FOMC) meeting are divulged to the public. On the same day, markets will look to the CPI and core CPI prints for further clues relating to when the U.S. will look to tighten monetary policy. Also of interest on Wednesday will be the release of domestic CPI and retail sales data.