Long weekend, interrupted

GM Daily: Long weekend, interrupted

Global: Companies starting to prepare for no deal on Brexit

SA: A quiet day ahead of us

Rand: Back below 17.00 to the US dollar

Local rates: Foreigners continue to be better sellers of SAGBs

What to watch today

• JN PPI Services (y/y)
• EC M3 Money Supply (y/y)
• US Durable Goods Orders
• CH BoP Current Account Balance 

Covid-19 update

Source: WHO, NICD

Economics and markets

• In the UK, concerns about rising covid-19 infection rates remain, with members of Boris Johnson’s party threatening to block new restrictions on the economy.
• As the British PM’s 15 October deadline for a trade deal with the EU looms ever closer, many are losing hope that a deal will be struck.
• Trump’s unwillingness to commit to an orderly transfer of power in the event he loses the US election has brought about some of the greatest dissent from within his party.
• The Dow, S&P 500 and Nasdaq all closed higher yesterday, while European markets fell; Asia’s Friday trading session is currently mixed.
• The rand, however, has recovered from the week’s weakest levels and is now trading below 17.00 to the dollar.
• USD/ZAR opens at 16.93; EUR/ZAR at 19.77; GBP/ZAR at 21.58 and CNY/ZAR at 2.48.

Good morning to the South African stalwarts who have returned to their desks this fine Friday – some may be out of necessity, some out of choice. A good way to think of today is long weekend, interrupted! Sometimes it can feel like a week’s worth of change happens in one day, and sometimes like nothing has changed at all. In today’s case, it feels more like the latter. In the UK, concerns about rising covid-19 infection rates remain, with members of Boris Johnson’s party threatening to block new restrictions on the economy. Furthermore, as the British PM’s 15 October deadline for a trade deal with the EU looms ever closer, many are losing hope that a deal will be struck. Rishi Sunak’s new support for the UK economy reflects some realities that there will be a spike in unemployment soon – rather than extending the furlough programme, the government will top up salaries for those who remain employed. This conservative and yet realistic approach possibly also speaks to the fact that he knows the next challenge is probably around the corner. He is not alone, with companies in the UK and EU with dependencies on each other stockpiling necessary parts as a no-deal Brexit becomes the base case for many, which has also resulted in the shifting of some positions across the channel. A no-deal Brexit, especially one in which there is a unilateral rewriting of the Brexit agreement, will bring about a number of challenges for both the EU and UK. 

In the US, Trump’s unwillingness to commit to an orderly transfer of power in the event he loses the US election has brought about some of the greatest dissent from within his party, as many prominent Republicans have commented publicly that they will ensure that the democratic principle of an orderly transition is honoured. 

US markets don’t seem to be too worried about the news though, as the Dow, S&P 500 and Nasdaq all closed higher yesterday, although the new waves of infection and growing concerns about a no-deal Brexit could be the driving force behind European markets falling. In Asia, it is a mixed morning, with the Nikkei up 0.5% and the ASX up 1.5%, but the Chinese and Hong Kong bourses are trading in the red. SA’s market will probably be rather subdued today given the public holiday yesterday and a serious dearth of data this week. The rand, however, has recovered from the week’s weakest levels and is now trading below 17.00 to the dollar. 

On that note, may you have a productive day if in the office, and a good return to the weekend in a few hours’ time. 

Siobhan Redford

Local rates

Foreigners were better sellers of close to R1bn on Wednesday again, favouring the belly area of the curve, with R2030s, R213s and R2032s wearing the most pain. There continues to be structural demand for the back end of the curve from local real money accounts as yields above 11.50 look attractive. 

With the majority of local investors taking an extended long weekend, we should be in for a quiet day flow-wise. The auction non-comps expire at 11 today and should put a halt on any rally should we have one. Currently the R2035s are the only bonds that are at the money, which should put pressure on any rally till 11. Overnight risk sentiment has improved, and the currency has traded below 17 again. SAGBs should take their cue from the currency today as we lack any local data and only have Durable Goods orders released in the US. 

The National Treasury will auction I2029s, I2038s and I2046s today. The combination of last week’s under-allocated auction, bearish currency and nominal markets, the shortened week, negative momentum and the mildly higher duration stocks on offer leads us to expect a weaker-than-average auction this week. That said, at these heightened levels, we have seen some measure of support step in, albeit not sufficient enough to switch to a more bullish note. This week’s auction should see less support, especially due to the public holiday yesterday. As such, we expect the auction to be fully allocated. However, we will probably see all three bonds on offer clear higher than current mark-to-market levels. 

Michelle Wohlberg