Just another manic Monday

GM Daily: Just another manic Monday

Global: Hefty event risk ahead this week

SA: Markets await president’s announcement on reform programme

Rand: Tracking sideways

Local rates: EM bond inflows

What to watch this week

Monday

• JN PPI (y/y)
• GE Wholesale Price Index (y/y)
• SA Manufacturing Prod SA (m/m)
• SA Manufacturing Prod NSA (y/y)

Tuesday

• JN Money Stock M3 (y/y)
• UK Claimant Count Rate
• UK Jobless Claims Change
• GE CPI (y/y)
• SA Mining Production (y/y)
• SA Mining Production (m/m)
• SA Platinum Production (y/y)
• SA Gold Production (y/y)
• US NFIB Small Business Optimism
• US CPI (y/y)
• CH Trade Balance
• US Monthly Budget Statement

Wednesday

• JN Industrial Production (y/y)
• EC Industrial Production WDA (y/y)
• US MBA Mortgage Applications
• SA Retail Sales Constant (y/y)
• SA Retail Sales (m/m)
• US PPI Final Demand (y/y)

Thursday

• CH PPI (y/y)
• CH CPI (y/y)
• SA Non-Farm Payrolls (q/q)
• SA Non-Farm Payrolls (y/y)
• US Empire Manufacturing
• US Initial Jobless Claims
• US Continuing Claims
• US Import Price Index (y/y)
• US Export Price Index (y/y)
• US Philadelphia Fed Business Outlook

Friday

• EC Trade Balance SA
• EC CPI (y/y)
• US Retail Sales Advance (m/m)
• US Industrial Production (m/m)
• US Capacity Utilization
• US Manufacturing (SIC) Production
• US Business Inventories
• US University of Michigan Sentiment
• US Net Long-term TIC Flows
• US Total Net TIC Flows

Covid-19 update

Source: WHO, NICD

Economics and markets

• USD/ZAR opens at 16.50; EUR/ZAR at 19.48; GBP/ZAR at 21.47 and CNY/ZAR at 2.45

I’m a child of the 80s. Music from that era is still as eccentric and inspiring now as it was three decades ago. The Bangles’ original 1986 hit, Manic Monday, is multigenerational. Granted I was only one at the time (a stark reminder of my age) but the lyrics speak to me as I’m sure they do to many of you: “It’s just another manic Monday”. The frenzy is set to last the rest of the week. 

One would have thought that Columbus Day would have provided a welcome reprieve from the frantic and sometimes petulant US presidential electioneering, but alas short-term volatility is still elevated. The cancellation of the second presidential debate makes matters worse, but stimulus talks (or the lack thereof) is the real matter at hand. As we noted last week, politics is firmly leading policy, which firmly reduces the likelihood of an expedient and efficient deal before the votes are cast. 

Risks extend beyond the “Land of the free” to a land where divine intervention might be needed to save more than the Queen (as the lyrics of the well-respected national anthem go). A last-minute Brexit deal is in the offing as the Prime Minister’s self-imposed 15 October deadline looms, but markets remain jittery as Johnson expressed that he’s prepared to walk away if the EU do not budge on fishing rights. One- week GBP-USD volatility is in line with its one-month measure, reflecting the extent of nervousness over a possible no-deal outcome. 

Global vulnerabilities, that extend well-beyond covid, will likely be discussed at this week’s virtual IMF/World Bank meetings, which kick off today. Former IMF lead and now ECB Chair Christine Lagarde will take centre stage today, reinforcing her committee’s stance on additional fiscal support to enhance the effectiveness of monetary policy measures. Despite a greater degree of policy coordination, Europe continues to trail the US regarding growth prospects, which is evident in longer-dated currency swaps. 

Despite heightened levels of volatility, global stocks continue to rally. Gains are evident throughout Europe, the US and Asia with the latter building positive momentum ahead of the President’s address where far-reaching reforms to open the economy further are likely to be announced. This morning’s intervention by the PBOC, which restrained yuan strength through the lowering of its risk reserves ratio to 0% for financial institutions when conducting certain FX forwards, has been met with a mixed response. EM currencies are flailing as reflected in early morning losses on most pairs. The rand is holding steady for the moment, inspired by the equities rally which is allowing it to trade sideways. 

Locally, the week holds much promise as the President is set to address the nation on the long-awaited and much-needed structural reform programme. The timing is fortuitous with only a few days left until the state of emergency expires. Some might argue that it is intentional as NT readies itself for the MTBPS announcement next week, where the possible funding mechanisms for the reform agenda will need to be announced. This is coming at a time of grave fiscal and debt distress threatening SA’s sovereign ratings outlooks – a reality that is plainly reflected in the steepness of the local bond curve and aversion towards SA assets. 

We’re all still wishing it was Sunday. 

Nema Ramkhelawan-Bhana

Local rates

Local currency trading comfortably around the 16.50 handle at the start of a new week. There were net inflows reported for Emerging Market bonds last week with Friday recording the lowest inflow volume for week. Year-to-date flows across Emerging Market bonds suggests a net outflow but we are slowly seeing a significant shift in EM sentiment across both equities and bonds. The local bond curve is under steepening pressure with the R2048/R186 spread trading around 460bps with the R2035s and super longs offering yields above 11%. 

The R2044s and R2048s ended Friday’s trading session marked around 11.7200 and 11.6800, respectively; however, despite the relatively attractive yields, flows on desks have remained spurious but we did see some local real money accounts buying longer-dated bonds. Local real money accounts were receivers in 15y and payers out to 30y on the swap curve, and on Friday we had the weekly linker auction. The I2025s cleared auction at 3.045 at a bid-to-cover ratio 1.00, the I2038s cleared auction at 4.82 at a bid to cover ratio of 1.61 while the I2046s cleared auction at 4.80 at a bid-to-cover ratio 2.30. All three auction stocks cleared at mark-to-market.  

We expect a fairly quiet day with minimal data being released – good luck for the rest of the week. 

Tebogo Mekgwe