Making lemonade out of lemons

GM Daily: Making lemonade out of lemons

Global: US stimulus talks stall

SA: Emergency PPE procurement ends

Rand: Weakening trend tempers as dollar weakens

Local rates: Offshore selling continues

What to watch today

• GE Factory Orders WDA (y/y)
• GE Markit Germany Construction PMI
• UK Markit/CIPS UK Construction PMI
• UK Bank of England Bank Rate
• SA Electricity Production (y/y)
• SA Electricity Consumption (y/y)
• US Initial Jobless Claims
• US Continuing Claims

Covid-19 update

Source: WHO, NICD

Economics and markets

• US fiscal stimulus talks seem to be at an impasse even as covid-19 continues to impact economic activity in the US.
• The Trump administration is targeting Chinese social media, software and other technology companies as tensions between the two largest economies escalate.
• The outcome of the monetary policy decision by the Indian MPC is highly uncertain, while the BoE is largely expected to keep interest rates on hold at its meeting today.
• Dollar weakness is driving EM currency strength, or in the case of the rand, seems to have arrested the recent weakening trend.
• Emergency PPE procurement in government will end and normal procurement paths will now be followed.
• USD/ZAR opens at 17.33; EUR/ZAR at 20.55; GBP/ZAR at 22.72 and CNY/ZAR at 2.50.

Beirut continues to come to terms with the devastation wreaked by the explosion of ammonium nitrate yesterday, and a country that was already facing more dire economic circumstances than SA going into the covid-19 shock now has to face further challenges, including finding homes for about 300,000 people, rebuilding, food security and additional pressure on an already stretched healthcare system. The world mourns with Lebanon. At least it would seem that the mobilisation of aid from other countries and international financing institutions, in terms of expertise and funding, will probably be almost immediate. 

This will stand in stark contrast with internal US fiscal stimulus talks, which seem to be at an impasse even as covid-19 continues to impact economic activity in the US. Ironic, given that this is the year in which action is even more vital, with US politicians keeping at least one eye on the upcoming November elections. Interestingly, it would seem that the Trump campaign social media accounts violated terms relating to spreading misinformation on covid-19, resulting in a video on Facebook being removed and the twitter account temporarily suspended. There is some irony in this, given that the Trump administration is targeting Chinese social media, software and other technology companies as tensions between the two largest economies escalate. 

The only other real news globally today will be the monetary policy announcements by the Reserve Bank of India and the Bank of England. It appears there is significant uncertainty as to what the RBI’s MPC will announce as it has to weigh up competing issues of weak growth and high inflation. There is more certainty about the BoE, which is expected to keep interest rates steady and possibly increase its asset buying, with keen interest on its assessment of the path for economic recovery. 

The dollar has weakened to its lowest levels against the euro in two years as fiscal stimulus talks have stuttered, and the pound further strengthened in anticipation of today’s rate announcement. Dollar weakness will be the reason for stronger looking EM currencies, the rand included. This “strength” though is very relative – and at least in the case of the rand seems to be more of the weakening trend arresting. With gold prices remaining elevated, SA’s equity bourse should continue its positive momentum in today’s trading session, however, markets are very much reflecting global uncertainty, with Asian markets showing mixed trading outcomes. 

In the absence of much data, with only the electricity consumption and production for June (before load-shedding recommenced) out today, SA will continue to see domestic markets swayed by global sentiment. It is worth noting that NT has announced that the need for emergency procurement of PPE has now passed, and thus normal procurement procedures are to be followed. While the need has passed, it should be no surprise that such an announcement is being made at a time when covid-related corruption dominates the news cycle. 

2020 has been a tough year. I don’t think there are many people out there who would challenge such an assertion, in fact, in economic terms, I think economists would label the year 2020 a lemon. And as the saying goes, when life gives you lemons, make lemonade. This is easier in some circumstances than others, but worth noting that not all covid-19 responses have been negative in SA. In fact, the CT factory that manufactured the famous Madiba shirt, and shipped it globally, has changed tack and is now producing reusable cloth facemasks, having managed to ramp production up to 2.5 million masks a month and actually adding a night shift. And whereas the Madiba shirt goes for a handsome R2,250, they are not selling the masks at a significant premium. This, in my mind, is a shining example of the spirit of ubuntu. 

Siobhan Redford

Local rates

At first glance, the recent offshore selling trend continued yesterday with a net outflow of just over R1.1bn. The “good” news though was that this was made up almost entirely of the R208 (R1bn), so overall foreign investors were neutral on the day which is a positive of sorts given the recent selling. As the market tends to do these days, last night’s closing levels were pretty close to the auction greenshoe levels on all three of the bonds issued on Tuesday (R186 7.50; R2032 10.22; R2048 11.525) so it will be interesting to see if the market can break through these levels today and indeed whether or not investors take up their options if we were to be trading around here come the 11am expiry this morning. The National Treasury was also a bit more adventurous with its auction stocks for next week, with R2032/2037/2044 on offer potentially trying to take some pressure off the shorter bonds, perhaps with a view to start the R208 switch auction process. Not surprisingly, the curve steepened by about 5 points, which is probably a good sign as it could have been worse. 

This morning we open up a touch weaker, with the rand up slightly at R17.30/US$ and R186s around 7.51/49 with no trade yet. 

On the economic front, watch for US Jobless claim numbers out at 2:30pm. 

Deon Kohlmeyer