Covid-19 surging again

GM Daily: Covid-19 surging again

Global: Waiting for the Fed

SA: IMF Board deliberates on SA loan request

Rand: Stronger than opening, with risks for weakness should risk-off take hold as covid-19 surges

Local rates: Rand rally post MPC

What to watch this week

Monday

• JN Capital Spending (y/y)
• EC M3 Money Supply (y/y)
• GE IFO Business Climate
• US Durable Goods Orders
• GE Retails Sales NSA (y/y)

Tuesday

• JN PPI Services (y/y)
• SA Non-Farm Payrolls
• US Board Consumer Confidence
• US Richmond Fed Manufacturing Index

Wednesday

• SA Money Supply M3 (y/y)
• SA Private Sector Credit (y/y)
• SA CPI
• UK Consumer Credit (y/y)
• UK M4 Money Supply (y/y)
• US MBA Mortgage Applications
• US Advance Goods Trade Balance
• US Retail Inventories (m/m)
• US FOMC Rate Decision

Thursday

• JN Retails Sales (y/y)
• GE GDP SA (q/q)
• GE Unemployment Change
• EC Economic Confidence
• SA PPI
• SA Monthly Budget Balance
• GE CPI
• US GDP Annualised (q/q)
• US GDP Price Index
• US Initial Jobless Claims

Friday

• UK GfK Consumer Confidence
• UK Lloyds Business Barometer
• CH Manufacturing PMI
• EC GDP SA (y/y)
• SA Trade Balance
• US Personal Income
• US Personal Spending
• US MNI Chicago PMI
• US University of Michigan Sentiment

Covid-19 update

Source: WHO, NICD

Economics and markets

• Concerns over a second wave of covid-19 and continued US-Sino tensions have boosted the gold price to new highs as risk-off sentiment seems to dominate market risk appetite.
• Thus, South Africa should face a day of mixed trade, with the rand biased towards further weakness (despite trading stronger than its opening levels today).
• Focus will be on the Fed’s Wednesday FOMC announcement, with expectations for continued dovishness to come out of the US’s monetary authority.
• We await the outcome of the IMF Board’s deliberations on SA’s application for funding under the Rapid Financing Instrument, scheduled for today. Only once approved will the contents of the letter of intent from the SA government be made public.
• USD/ZAR opens at 16.70; EUR/ZAR at 19.45; GBP/ZAR at 21.33 and CNY/ZAR at 2.36.

There has been news over the weekend of increasing evidence that covid-19 is surging in countries which had managed to control their infection rates, including China, Vietnam and Australia. In addition, Hong Kong continues to see no relief despite having escalated its lockdown measures and subsequently implementing further measures. Europe is also facing concerns of increased transmission, with the UK government now imposing a 14-day quarantine on anyone returning from vacationing in Spain. Most interesting is that it would seem India currently holds the unenviable position of having the fastest pace of new infections, while Latin America also continues to see infection rates rise. South Africa is not exempt and remains Africa’s epicentre. However, we can hope that we are currently seeing the peak in infections, as expected, which should mean that in the next few weeks the rate of new infections will start to fall. Only time will tell.

Concerns over a second wave of covid-19 and continued US-Sino tensions have boosted the gold price to new highs as risk-off sentiment seems to dominate market risk appetite. This has also kept oil prices supressed off recent highs. Asian markets started the week mixed, with the Malaysian bourse continuing its particularly robust performance for the year, up 1.43% thus far today, while more muted positive results can be seen on the bourses in Korea, China and Australia. The Japanese, Hong Kong and Indian bourses, though, are currently trading in the red. Thus, South Africa should face a day of mixed trade, with the rand biased towards further weakness (despite trading stronger than its opening levels today).

Globally, there is quite a lot of data out, including GDP estimates for the US, Germany and euro area, but the focus will be on the Fed’s Wednesday FOMC announcement, with expectations for continued dovishness to come out of the US’s monetary authority. Locally, today will end on an interesting note as we await the outcome of the IMF Board’s deliberations on SA’s application for funding under the Rapid Financing Instrument, to the maximum value of US$4.2bn. Only once approved will the contents of the letter of intent from the SA government be made public – what has been promised in return for the funds?

There will be quite a lot of other data released – the normal month-end government budget figures and trade data, as well as the June CPI and PPI. The CPI figure will be telling in that the rental component will have been surveyed for this print, which we expect to be flat as consumer weakness results in landlords preferring to keep good, paying tenants over risking vacancies. This would push inflation lower than expected by the MPC at last week’s meeting and support our view for very low inflation in SA during 2020. These releases will all be important for the MPC, which has emphasised its data dependence in making future decisions.

As we head to the end of the seventh month of the longest year, SA will also watch closely for any signs of lockdown easing which has been the pattern until now. Although given recent reversals and facing the peak of infections, we may be waiting well into August before we are given more freedom.

Siobhan Redford

Local rates

The inflation-linked auction on Friday seemed to suggest there is still demand for the back end of the linker curve. It also remains evident that the market is battling to absorb the increased issuance. With the I2025s, the I2046s and the I2050s all clearing at market, the National Treasury issued 725m of the I2025s and they cleared at 3.81 with a bid to-cover ratio of 2.86, suggesting sufficient support for the front end as well. The I2046s cleared at 4.91 with a bid-to-cover ratio of 1.74, while the I2050s cleared auction at 4.92 with a bid-to-cover ratio of 2.03. With the FRA market already indicating a 25bp cut on Thursday, this morning we see the R186s back at Tuesday’s opening levels of around 7.49 after having traded to 7.33 post MPC. We had some local real money accounts buying R2037s and R2048s, with the R186s attracting better selling interest from local fast money, the Interest Rate Derivatives market had local real money paying from 1-yr out to 15-yr while receivers were seen around the 10-yr part of the swap curve, activity in the options desk remains spurious but we had some R2044 option unwinds being passed in the broker market. Similar to the R186s, the currency is also trading at Tuesday morning levels.

Tebogo Mekgwe