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RMB – a division of FirstRand Bank Limited, is an Authorised Financial Services and Credit Provider NCRCP20.
Copyright © RMB 2026. All rights reserved.
Global: A calmer day anticipated in markets, with a positive bias
SA: Diesel shortage expected to last until end of May
Rand: Sitting around 17.40 to the US dollar, further strength or weakness will be determined by market sentiment
Local rates: Bonds are flattening pressure
Source: WHO, NICD
It would sometimes seem that the arrival of the covid-19 pandemic resolved all other issues facing many countries. This is not the case, however, with immediate concerns regarding the virus having merely crowded out other worries. As market sentiment turns positive on the wave of news of easing lockdowns, it would appear as the waters grow calm that the issues which existed before have not been washed away, but will return. Key issues on the global front include the continued fight by some in Hong Kong for a level of independence from Mainland China, with protests spurred by Beijing’s recent imposition of a national security law. In response, the US is now considering raising sanctions on key Chinese officials. It is probably these dynamics which have pushed Chinese and Hong Kong bourses lower in today’s trading session.
Nonetheless, there is some good news on the horizon for markets, with a second stimulus package announced for Japan’s economy and markets continuing to ride the wave of optimism from anticipated economic recovery as lockdowns across the globe are set to ease in coming weeks. In response, Russia is now talking of easing supply cuts from July as demand for oil increases alongside economic activity. The question is, do we face another OPEC+ internal fight in the coming months? As it would seem that Saudi Arabia wants to extend oil cuts for a further two months. Only time will tell.
Other than the Hong Kong and Chinese bourses, most markets performed well overnight, with the Dow and S&P 500 both recording gains of well over a percent as US markets joined in on global optimism after being closed on Monday. The Nikkei and ASX have recorded positive momentum thus far today, although not quite to the same extent as that seen in the US. This bodes well for the local bourse which recorded a robust performance yesterday, but as in Asia, we will probably see more muted moves than the US.
Positive market sentiment has generally been good for EM currencies, no less the rand, which is experiencing remarkable strength this week. But movements have been more muted in EM currencies today, and the same can be expected for the rand, which should fluctuate around the R17.40 level to the US dollar.
Like the rest of the world, covid-19 has merely crowded out pre-existing concerns for the local economy. As lockdown eases, we can expect to see more news about SA’s seemingly never-ending employment crisis, poverty and inequality, which become starker as temperatures drop and power shortages increase. Diesel refineries in SA resumed operations this month, however, it would seem that demand for diesel has exceeded the increase in supply, leading to a shortage and rationing, which is expected to last until the end of the month. This could become even more problematic should the demand of electricity ramp up significantly as the economy opens, putting pressure on supply and increasing Eskom’s demand for fuel for its open cycle gas turbines.
It is the news that will be most closely watched though, as more details of SA’s move to level 3 of lockdown will come in the form of ministerial press conferences scheduled during the course of the week.
The curve has come under some flattening pressure on the back of last week’s hawkish Monetary Policy Meeting. Despite this, trading activity across most of the fixed income instruments remains relatively thin as the market struggles to find decent liquidity. Coupled with a diminishing risk appetite and the increased auction issuance, the current trading environment is very tricky for market makers and investors alike. In yesterday’s nominal auction, the R186s cleared at 7.55 with a bid-to-cover ratio of 2.18, the R2030s cleared auction at 8.96 with a bid-to-cover ratio of 2.14 and the R2035s cleared auction at 10.24 with a bid-to-cover ratio of 2.28. While the price action on the bond curve is underwhelming, bonds remain relatively cheap. The inflation-linked and interest rate derivative market remains flat with dwindling liquidity, while there were some buyers of the I2050s and cares in the 9x12 and 15x18 FRAs yesterday. With the rand trading below the 17.50 handle, we could very well see some investors looking to take profit on their risk reversals and butterflies.
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