In the data we do trust

GM Daily: In the data we do trust

Global: Investors prioritising positive data

SA: Local backdrop remains precarious
Rand: Revelling in risk rally

Local rates: USD/ZAR testing the 17.00 level

What to watch today

• EC PPI
• SA Current Account Balance
• US Wholesale Inventories
• SA Electricity Production and Consumption
• US Trade Balance
• US Initial Jobless Claims

Covid-19 update

Source: WHO, NICD

Economics and markets

• 3 million active cases of covid-19 worldwide.
• Of the 3.8 billion people employed globally (per the ILO’s latest reading), 0.3% are afflicted by covid-19.
• As case numbers flare in hotspots, there are obvious concerns as to the implications for the labour market.
• Investors, however, appear to be prioritising positive data.
• Fuelled by hope, the risk rally has manifested in broad EM currency gains, with the MSCI measure of EM FX performance up 0.3% overnight.
• The local backdrop remains precarious.

• USD/ZAR opens at 17.04; EUR/ZAR at 19.18; GBP/ZAR at 21.27 and CNY/ZAR at 2.41.

There are 10.3 million active cases of covid-19 worldwide. That’s roughly 0.1% of the world’s 7.8 billion strong population. Arguably modest. The numbers, though, become more meaningful as a proportion of the working world. Of the 3.8 billion people employed globally (per the ILO’s latest reading), 0.3% are afflicted by covid-19. These aren’t merely interesting statistics that can be quoted in virtual conversations, but rather a representation of how productivity has and will continue to be impacted as governments lower restrictions. 

As case numbers flare in hotspots, there are obvious concerns as to the implications for the labour market. Not least in the US, where jobs reports will be released today (earlier than normal on account of the Independence Day holiday). Non-farm payrolls and weekly unemployment claims tend to roil the market, especially as there are concerns over monthly distortions that might have inflated the figures. Investors, however, appear to be prioritising positive data, inspired by the 14-month high in US ISM manufacturing data, with new orders suggesting that an economic recovery is underway. Which data should we trust? 

Confidence is reflected in the S&P 500, which continues to outperform global bourses, buttressed by unparalleled monetary and fiscal stimulus. Wall Street’s optimism carried through into the Asian session despite the imposition of the new national security law in Hong Kong, the PBOC’s apparent easing of policy support and approval of legislation penalising US banks conducting business with Chinese officials involved in the security law. Despite sufficient evidence of economic and geopolitical fragility worldwide, risk assets are rallying as clinical trials of an experimental covid-19 vaccine showed promise. 

Fuelled by hope, the risk rally has manifested in broad EM currency gains, with the MSCI measure of EM FX performance up 0.3% overnight. The rand’s fortunes have turned as the local unit tests 17.00 against the greenback. Despite rand gains not mirroring the strength of the Brazilian real in the last week, its about turn is formidable. Still yielding among the best carry trade returns across the EM complex, the rand could run ahead of its EM peers, though its ability to break lower will depend on whether local risks are placed ahead of global determinants. 

The local backdrop remains precarious. Recent economic data is testament to the loss of productivity and the mammoth task that lies ahead. A reality that will most likely underpin medium to long-term investment trends, even if it’s not apparent in today’s trading activity.   

Nema Ramkhelawan-Bhana

Local rates

Yesterday, local real and fast money accounts traded lightly across the nominal curve, and the flow was generally two-way throughout the day. The R2048 saw better buying cares towards the end of trading while local fast money expressed it in the form of spreads and flies. The R2048s put options also made a cameo appearance in the local broker market along with the R186s and R2030s put, while the Interest rate derivatives market continues to battle liquidity constraints, local fast accounts were better receivers on the front end of the IRS curve.

Packs are also trading lightly with the 5-yr/R186 and 10-yr/R2030 trading -2.58 and -2.34 respectively. FRA activity has also been minimal this week. The rand is testing the 17.00 handle again as we open trading around 17.04 this morning, flows on the currency side remain constrained, although we did see some sellers above 17.20. In tomorrow’s linker auction, we have the I2029s, I2038s and I2046s on offer. Good luck out there!

Tebogo Mekgwe