Extra, extra, read all about it

GM Daily: Extra, extra, read all about it

Global: US equities performance at odds with real economy

SA: Level 2 of the risk-adjusted strategy might be imminent

Rand: Well supported by stronger EUR/USD

Local rates: Lower short rates help bonds stabilise

What to watch today

• SA Mining Production
• US Initial Jobless Claims
• US Continuing Claims 

Covid-19 update

Source: WHO, NICD

Economics and markets

• Rumoured lifting of restrictions on the alcohol and tobacco industries.
• Cabinet is yet to confer on the matter, but a presidential announcement is expected tonight.
• Eskom reinstates Stage 2 power cuts amid plant breakdowns.
• The SARB has come under considerable pressure to relieve SA’s economic burden.
• The divergence between US equities and the real economy is distinct, creating a push-pull effect on EM assets.
• A weaker US dollar is key to EM FX. EUR/USD is being driven sharply towards 1.19, grounding USD/ZAR around the 17.40 level.
• USD/ZAR opens at 17.47; EUR/ZAR at 20.59; GBP/ZAR at 22.77 and CNY/ZAR at 2.50.

It’s been a few days since I last penned the daily commentary. A largely email and MS teams-free extended women’s day weekend afforded me time away from the newswires. Don’t mistake my need to decompress for ignorance. News is paramount to our existence. It conveys information, indignation and acts of great kindness at a time of grave uncertainty. Often though, it leaves a bitter taste in your mouth. 

That seems like an appropriate segue into the rumoured lifting of restrictions on the alcohol and tobacco industries. Arguably, the damage to the various trades and the joblessness that has ensued from the extended lockdown provide meaningful justification for the respective bans to be lifted, especially as virus epicentres are assumed to be past the worst as the number of fatalities reported has fallen significantly for the second week in a row. That is, at least, according to recent reports from various nodes of labour and business. Cabinet is yet to confer on the matter, but a presidential announcement is expected tonight. 

How and where you watch or hear the President address his fellow South Africans will depend on your load-shedding schedule, as Eskom reinstates Stage 2 power cuts amid plant breakdowns, which have put undue strain on the national grid. It noted in a press brief that the constrained supply situation may persist throughout the weekend. A not too unfamiliar sentence, though one we have happily avoided over the last few months. Yet, it does bring to the fore SA’s underlying structural issues that long predated covid-19 and will probably persist well after the virus numbers peak. As the country battles chronic unemployment and investment outflows, the state is left to devise a clear, coordinated and consistent growth plan to which all spheres of the government are held accountable. 

The SARB has come under considerable pressure to relieve SA’s economic burden but remains adamant that it cannot act outside of its constitutional order as it continues to fend off suggestions for an expanded mandate. To the Governor’s credit, he remains resolute: “Given all the challenges facing South Africa, we should recognise that monetary policy is the last place where we should consider risky changes”. Investors, sceptical of SA’s fundamental risk, rely on a steadfast and independent central bank which acts in accordance with its mandate and corrects for market dysfunction. Something which the SARB has done consistently since the global markets upset in March. 

In isolation, the notion of support would be supportive of local assets, but paired with global happenings, the rand and bonds are coming under pressure. One would think that US equity benchmarks are heralding a turn in US fortunes as the S&P500 shot above its highest level. And yet Fed officials are still expressing concern over the virus and its economic impact, while Congress remains deadlocked. The divergence is distinct, creating a push-pull effect on EM assets. 

A weaker US dollar is key to EM FX. EUR/USD is being driven sharply towards 1.19, grounding USD/ZAR around the 17.40 level. Today’s jobless claims figures should provide steer to the US dollar, as will the continued easing in US real yields. Geopolitical risk, though, remains unpredictable as the US imposes tariffs on additional German and French goods in a bid to pressurise the EU into settling a long-running dispute over illegal subsidies to Airbus. The US remains the common denominator in the global formula for growth, making the outcome of November’s presidential elections ever more important. 

Time to check the news feed again. 

Nema Ramkhelawan-Bhana

Local rates

With three-month Jibar dropping ever lower (down 6 points yesterday), all indications are that liquidity in the market has stabilised and in fact that there may even be too much cash available at the moment. With bank funding requirements also lower given the lack of balance sheet growth due to the lockdown damage to the real economy, investors need to find other avenues to place their cash and this has seen some strength return to, especially the shorter end of, the bond market. 

This has led to some steepening of the curve as demand continues for R2023s and R186s, while, as we saw with this week’s auction with the R2037 clearing 10 points above the market, supply concerns continue to plague the longer end of the curve. This has seen the National Treasury reverting back to the shorter R186 and R2032 for next week’s auction, while also including the R2048, which does attract a different kind of investor. Not surprisingly, the market has not been able to break through the green-shoe levels so far, with only the R2037 close to the strike and this only due to the auction clearing so surprisingly high. 

This morning, the rand is stable at R17.43/US$ with bonds opening up unchanged from yesterday’s close. 

Locally, watch for mining data out at 11:30am, with another year-on-year drop expected (-20%). 

Deon Kohlmeyer