Maintenance

GM Daily: Maintenance

Global: US presidential debate goes unnoticed

SA: Market awaits all-important MTBPS

Rand: Stellar outperformance, though consolidation evident amid slight risk-off tone

Local rates: Rand helps bonds rally further

What to watch today

• UK GfK Consumer Confidence
• JN Natl CPI (y/y)
• JN Jibun Bank Japan PMI Mfg
• UK Retail Sales Ex Auto Fuel (y/y)
• GE Markit/BME Germany Manufacturing PMI
• EC Markit Eurozone Manufacturing PMI
• UK Markit UK PMI Manufacturing SA
• US Markit US Manufacturing PMI
• CH FX Net Settlement - Clients CNY

Covid-19 update

Source: WHO, NICD

Economics and markets

• Weather-proofing investment portfolios has proved challenging as US stimulus and SA MTBPS storm clouds build overhead.
• Most positions have been fortified against droplets of Brexit and US electioneering rains.
• EUR/USD’s jitteriness around 1.18 speaks to the level of unease over US stimulus talks.
• The second US presidential debate was far more composed than the first scuffle but equally uninteresting to markets.
• Repeated and more powerful waves of covid-19 pose continued downside risk.
• Suppressing the virus without strangling growth is at the forefront of global governmental concerns.
• Domestically, the MTBPS will be all the rage as markets rationalise the need for growth against a constrained fiscus.
• USD/ZAR opens at 16.21; EUR/ZAR at 19.15; GBP/ZAR at 21.20 and CNY/ZAR at 2.46.

We’ve recently had repairs done to our home. A necessary, albeit noisy and costly, facelift. Our parents warned us of the perils of owning a house. “Constant maintenance,” they said, “it takes more than love to keep the walls standing,” they said. Little did we know…they were right. The same treatment is required, almost daily, in global markets. 

Granted, it’ll take more than a slick of paint or coat of varnish to patch up the global economy. Weather-proofing investment portfolios has proved challenging as US stimulus and SA MTBPS storm clouds build overhead. Most positions have been fortified against droplets of Brexit and US electioneering rains, though the torrential haggling over an American fiscal package has proved difficult to shelter against. 

EUR/USD’s jitteriness around 1.18 speaks to the level of unease over US stimulus talks. A pre-election vote is increasingly unlikely given the significant policy differences. The Senate is firmly opposed to the spending levels being discussed, despite ongoing talks between the House and Treasury. A pact on the disbursement of funds for testing and tracing to reopen schools could be penned in advance of the 3 November presidential vote, though the larger US$2trn package is doubtful. 

Not that it was mentioned in detail during the second US presidential debate, which was far more composed than the first scuffle. The discussion covered everything from climate change to immigration, with the candidates scrapping over the response to the coronavirus amid rising active cases, an issue that will continue well beyond the ballots being cast and the votes being read. 

Therein lies the biggest risk for 2021 – repeated and more powerful waves of covid-19 forcing the re-enactment of strict lockdown measures, which are already being reasserted in parts of Europe. Amid all the bickering over Brexit, Britain is battling rising daily case numbers, recording over 21,000 infections yesterday. That is 15% more than SA’s total number of recorded deaths. SA’s excess death count is an entirely different story. 

Despite our protracted lockdown, authorities are alive to the possibility of a second wave, with the Health Minister warning of declining adherence to safety measures and social distancing. We cannot simply extrapolate European trends, but common sense (which Siobhan wrote about earlier in the week) tells us that in the absence of suppression or a vaccine, non-compliance with non-pharmaceutical interventions (a term used to collectively describe all mitigating measures) can only result in stricter protocols. 

Suppressing the virus without strangling growth is at the forefront of global governmental concerns. One that will probably dominate policy rhetoric next week as the New Japanese Prime Minister, China’s CCP, Bank of Canada, ECB and the Fed’s Kaplan take to the stage. US earnings season is in full swing with the CEOs of tech giants scheduled to testify before the Senate on privacy issues on Wednesday. This could impact the FAANG performance, widening the growing chasm between it and Bitcoin’s performance. 

Domestically, the MTBPS will be all the rage as markets rationalise the need for growth against a constrained fiscus. Ahead of Wednesday, we expect local markets will continue to be characterised by quiet trading with a bullish undertone. The SA money market is eerily still relative to historic levels, despite monies still being deployed. Demand is evident in the T-bill market as rates in the 6-,9- and 12-month area remain attractive, though volumes are subdued, especially at primary auctions. 

Spot rand continues to take its cue from generalised risk sentiment, showing modest gains this morning, unlike the majority of its EM peers which are trading softer against the US dollar. Worst among these is the Argentinian peso, which at the time of writing was down 0.4%. The rand’s performance has been unprecedented, and a positive read of Wednesday’s budget should reinforce its appreciatory momentum. For the moment, a mixed equity performance speaks to a fatigued investor base who, like me, are probably thankful for a maintenance-free weekend. 

Nema Ramkhelawan-Bhana

Local rates

With the rand 3% stronger this month, there has been a commensurate rally in a very over-sold bond market as well. This week though has seen the biggest move, with the R2048 stronger by some 14 points despite being on offer next week again at the weekly auction. The stronger rand has helped positive bond sentiment immensely, with this week seeing a pause in the continuous offshore selling that has characterised the market for some time. They have been net sellers of around R8bn for the month though, which will no doubt show another monthly decline in their percentage ownership of our bond market, with the local banks and asset managers having to take up the slack. 

This morning, we also have the weekly ILB auction with R2bn on offer across the I2025/33/46 strip of bonds. Today’s auction is somewhat lighter in duration than the last few weeks, with the I2046 the only long bond on offer and, as such, we should see the auction clearing around last night’s MTM levels of 2.98/4.72/4.85, respectively, given the bidding interest we have seen these last few weeks. 

There is no meaningful data out today locally, or in the US, and with the budget looming next week, we expect a quiet trading day after the ILB auction. 

Deon Kohlmeyer