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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 new lockdown expected to be announced in France today
SA: Focus will be on the release of the MTBPS this afternoon
Rand: Reception of MTBPS will be reflected in rand response this afternoon
Local rates: Strong auction ahead of MTBPS
Source: WHO, NICD
The long wait ends today. The confluence of event risk – entailing the release of the Medium-Term Budget Policy Statement (MTBPS), the US elections and a pretty hard deadline for Brexit negotiations – begins today when Minister Tito Mboweni delivers SA’s budget update this afternoon. SA typically has two budget releases a year – prior to the beginning of the fiscal year – the delivery of the Budget and the mid-fiscal-year update. 2020 has not been a normal year, clearly illustrated by today’s presentation being the second in-fiscal-year update. A lot is expected of the MTBPS, not least of all greater detail on the government’s fiscal consolidation path, which was hinted at in the Special Adjustment Budget (SAB).
Our concern is that a short and sharp consolidation could deliver another negative shock to an economy which is already in a rather shocking state. That is not to say that fiscal consolidation should not be pursued – it is imperative that SA reverses its increasing debt trend. However, this must be done in a way that is mindful of economic activity, with government expenditure accounting for an average of 20% of real GDP over the past ten years. Ultimately, the best way to reverse this trend is to create an enabling environment for private sector investment (including having a competitively priced and reliable energy supply) so that SA’s economic reliance on government expenditure narrows significantly. Such an approach would lead to improved private sector employment, reducing the demand for social support from government, and also see the tax-paying base increase. Improved economic growth would make a credible, sustainable reduction in SA’s debt profile much easier to achieve.
The first assessment of the budget will most likely be in the form of a rand response. The local unit has been steaming ahead of its EM peers, strengthening to close to 16.10 against the greenback yesterday, and could remain trading in stronger territory for the morning. However, the rand’s response to the minister’s delivery will indicate how well, or not, the MTBPS has been received by markets. This will probably be the beginning of a period of heightened volatility for a famously volatile rand as market responses to the US election outcomes, any news on Brexit negotiations and rating updates on SA’s sovereign debt are due during the course of November.
Markets in the US showed a bit of a mixed bag as the S&P 500 and Dow closed Tuesday’s trading session in the red, reflecting uncertainty over the US elections as well as some disappointment that any US stimulus deal is now most likely to be announced after the elections. Bucking the trend was the tech-heavy NASDAQ, buoyed by Microsoft’s better-than-expected results, which were boosted by increased demand due to needs arising from the global move to work-from-home. Asian markets are reflecting a rather mixed bag of results for today, with the Nikkei trading about 0.3% lower, the Hang-Seng flat and the ASX and Shanghai Composite index trading higher. This rather mixed trading pattern probably reflects uncertainty over the US elections as well as concerns over rising infection rates across Europe and the US, with a month-long lockdown expected to be announced for France later today.
In some good news, SA’s president countered rumours that the country was heading towards more stringent lockdown (level 3) but did caution that SA needs to remain vigilant, with our leadership taking note of super-spreader events. In more recent news, President Ramaphosa has now had to self-quarantine after someone he has recently had contact with tested positive for the virus. Let us hope that this will just be a formality.
All eyes will be on the much-anticipated MTBPS today, which will hopefully provide some much-needed direction for the economy. The local currency trading ahead of the speech and CPI print this morning reversing some of yesterday’s gains against the greenback and other major currencies. Questions remain on whether Minister Mboweni will throw the ailing national carrier another lifeline or if we can expect any changes to the weekly bond issuance. Emerging market bonds have been seeing decent inflows since last week, while EMEA equities continue to struggle. With the US elections less than a week away, the 1-week implied volatility spiked overnight and is being offered around 19.20 from yesterday’s 16.50 close. On the flow side of business, we saw local fast money receiving 2x5 and 9x12 while local real money were better sellers of SAGBs. The nominal auction was well attended with the stock clearing stronger than market, supported by healthy bid-to-cover ratios.
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