Less meaty

GM Daily: Less meaty

Global: Tech stocks boost the Nasdaq

SA: Surpassing 200,000 cases

Rand: Straddling 17.00 against the greenback

Local rates: Has the market reached its saturation point for SAGBs?

What to watch today

• JN Leading Index CI
• GE Industrial Production WDA (y/y)
• SA Gross Reserves
• SA Net Reserves
• SA BER Consumer Confidence
• US JOLTS Job Openings
• CH Foreign Reserves

Covid-19 update

Source: WHO, NICD

Economics and markets

• It would seem that meat producers should be bracing themselves for a decrease in demand for their products this year.
• Bracing for a double dose of “new normal” is the United Kingdom – with the deadline for the finalisation of the details of a Brexit deal with the EU looming ever nearer, it has also waded into the geopolitical quagmire.
• Ignoring geopolitical tensions and rising virus numbers, the Nasdaq shot to new highs yesterday, buoyed by tech shares.
• South African assets will probably follow the relatively flat trend, with the rand in tow, most likely straddling the 17.00 level against the US dollar.
• USD/ZAR opens at 16.99; EUR/ZAR at 19.21; GBP/ZAR at 21.20 and CNY/ZAR at 2.42.

“New normal”, a phrase that is very much a part of many people’s lives these days. I know I’ve had many conversations in which the shape of this “new normal” is speculated upon – more people working from home, permanent versus temporary economic impacts, online education, and the future and price of air travel are just a few of the topics I have come across. A new topic is the demand for meat. It would seem that meat producers should be bracing themselves for a decrease in demand for their products this year, with a number of contributing factors, including a decrease in restaurant outings due to lockdowns, lower income and employment as well as some worry over the transmission of disease from meat consumption in the wake of the eruption of covid-19. 

A country bracing for a double dose of “new normal” is the United Kingdom – with the deadline for the finalisation of the details of a Brexit deal with the EU looming ever nearer. It would seem that trade relations are not the only focus for British lawmakers though, with the Foreign Secretary announcing sanctions against a number of Russian officials accused of human rights abuses. It is not just Russia that the UK has in its sights, as there have been offers of fast-tracked citizenship to Hong Kong residents in response to the latest security law imposed on the Special Administrative Region by China and a planned phase out of Huawei from 5-G network plans for the country – sanctions on Chinese officials are not to be ruled out either. 

Ignoring geopolitical tensions and rising virus numbers, the Nasdaq shot to new highs yesterday, buoyed by tech shares, not a major surprise given the increased use of tech to maintain as much global economic activity as possible during lockdown. Today though, market sentiment has calmed as very little data is expected, so markets will probably trade relatively flat, as seen in the Asian trading session. The exception being the Chinese bourse, which has seen stocks up over 1.5% today. South African assets should follow the relatively flat trend, with the rand in tow, most likely straddling the 17.00 level against the US dollar. 

Our virus numbers, on the other hand, seem to be skyrocketing, with the total count of infections in SA breaching 200,000 yesterday, while consumer confidence will probably have plummeted in the second quarter of 2020. On that note, have a good day, stay safe and remember that this too shall pass.  

Siobhan Redford

Local rates

While flows remain light as the Northern Hemisphere summer holidays kick in, volatility is here to stay, with investors still sceptical of the market’s ability to absorb all the incoming SAGBs. Monday's price action was similar to Friday, with bonds weakening by 15bp and the yield curve steepening again. The price action seems to be driven by fumes, as yields tick higher with no real catalyst other than a few flows going through the market. A positive risk environment is also not enough to give SAGBs any help currently.  

With price action like this, despite the positive backdrop, it feels like the market might have reached its saturation point for SAGBs currently, although today's auction will be a good indication of further demand. The National Treasury will issue R6.6bn in R186s, R2030s and R2048s today. Yields have sold off quite a bit over the last week and do seem attractive at current levels. Unfortunately, the other side to this coin is why buy today if you can buy next week at a higher yield as the market struggles to digest the sheer size of the auction. With a relatively light data week ahead, bidding should be at sensible levels today with yields expected to clear at if not slightly higher than market mids. 

Data out today includes gross and net reserves as well as consumer confidence. The reserve figures will be watched with a keen eye as investors try to glean how active the SARB has been in the secondary market.  

Michelle Wohlberg