Marco Polo

GM Daily: Marco Polo

Global: Virtual gatherings to drive momentum this week

SA: Data calendar littered with points

Rand: Rand leading EM pack, capitalising on Friday’s positive momentum

Local rates: Strong ILB auction

What to watch this week

Monday

• US Chicago Fed Nat Activity Index

Tuesday

• GE Private Consumption (q/q)
• GE GDP SA (q/q)
• SA Leading Indicator
• US House Price Purchase Index (q/q)
• US FHFA House Price Index (m/m)
• US New Home Sales
• US Richmond Fed Manufact. Index

Wednesday

• JN PPI Services (y/y)
• SA CPI (y/y)
• US MBA Mortgage Applications
• US Durable Goods Orders

Thursday

• EC M3 Money Supply
• SA PPI
• US GDP Annualized (q/q)
• US Core PCE (q/q)
• US Initial Jobless Claims
• US Continuing Claims
• US Kansas City Fed Manf. Activity
• GE Retail Sales (m/m)

Friday

• UK Lloyds Business Barometer
• JN Tokyo CPI (y/y)
• GE GfK Consumer Confidence
• EC Economic Confidence
• EC Consumer Confidence
• SA Monthly Budget Balance
• US Personal Income
• US Advance Goods Trade Balance
• US Personal Spending
• US PCE Deflator
• US University of Michigan Sentiment

Covid-19 update

Source: WHO, NICD

Economics and markets

• Despite equity benchmarks maintaining record high levels, other asset classes are flailing due to a lack of fundamental support.
• Something has got to give for there to be a discernible change in trading behaviour. Virus concessions are uninspiring on their own.
• Virtual gatherings will drive global momentum this week.
• The week is littered with data points locally.
• USD/ZAR opens at 17.12; EUR/ZAR at 20.20; GBP/ZAR at 22.45 and CNY/ZAR at 2.47.

The daily is inspired by the Venetian merchant and explorer, Marco Polo. Rather than his adventurous exploits, we reference the call-and-response pastime supposedly inspired by his travels to China where Marco, after being separated from his family, called out "Polo" as his family bellowed his name. As we end a seasonally quiet month, we find ourselves calling out for direction as the risk rally peters out. Despite equity benchmarks maintaining record high levels inspired by value stocks and tech counters, other asset classes are flailing due to a lack of fundamental support. 

To find bearing, we require certainty, or at least clarity on more than just a vaccine, as broadening geopolitical tensions, US elections and a tiresome congressional stimulus stalemate force investors into a holding pattern. Something has got to give for there to be a discernible change in trading behaviour. Virus concessions are uninspiring on their own. The extension of blood plasma treatment in the US is interesting though uninspiring as researchers are yet to fully understand how well it works. 

Virtual gatherings will drive global momentum this week. The Republican National Congress follows on the heels of the DNC, with the GOP’s presidential candidate (the incumbent) scheduled to speak on Thursday. The Asian session on Friday will provide an interesting read of @realDonaldTrump’s musings, especially on Chinese trade relations, as Washington is rumoured to resuscitate talks with Beijing (where have I heard that before?). Trump faces off against Powell as Jackson Hole looms large. After last week’s dubious response to the Fed minutes, any hint, however small, that the central bank is steering away from accommodation will upend already cautious markets. The BOE’s Bailey might receive some attention on Friday, though the lack of progress on Brexit is setting the tone for pound assets as cable looks toppish at 1.30 against the greenback. 

Risk currencies are holding firm for the moment despite net longs on the euro against the US dollar receding. The rand is leading aggregate gains across the EM spectrum, capitalising on Friday’s positive momentum, which guided it below USD/ZAR17.20. Perhaps the resolute stance by the government towards rooting out graft is winning favour among investors? 

What does the last week of a seasonally quiet August have in store for us locally? Quite bizarrely, there were no local releases of significance last week. This week is littered with data points. June’s composite leading indicator will be released on Tuesday and should give further guidance as to the short- to medium-term activity that can be expected in the economy. More important will be the release of July’s CPI figure on Wednesday. This will be the most current available CPI figure (according to Stats SA’s release schedule) when the Monetary Policy Committee meets next month. 

Marco… Polo. 

Nema Ramkhelawan-Bhana

Local rates

Friday ended off what was undoubtedly one of the better auction weeks we’ve had in a while, as the linker auction also attracted significant interest on the back of a relatively strong nominal auction on Tuesday. All the linker stocks cleared better than their respective mark-to-markets. Both local and offshore investors showed interest in the auction, with the I2025s and the I2046s attracting the bulk of the auction cares.

On the day, the I2025 cleared auction at 3.35 (market 3.41) with a bid-to-cover ratio of 3.80, the I2033 cleared auction at 4.57 (market 4.58) with a bid-to-cover ratio of 2.51, while the I2046s cleared auction at 4.78 (market 4.84) with a bid-to-cover ratio of 3.15. The National Treasury issued 665m, 680m and 655m of I2025s, I2033s and I2046s, respectively. Post auction, we saw local real money selling I2038s and I2046s and buying I2050s.

The nominal desk had some decent two-way flow on the front spectrum of the curve from both local real and fast money accounts trading R186s, R2030 and R2032s. There were some cares in the longer-dated bonds, in particular R2040s and R2048s. With the start of the new week, the curve remains under mild steepening pressure, with the R2048/R186 spread middling at the 410bp mark, up from 400bp last week Thursday. Activity on the interest rate derivative desk remains light, although we saw local fast money expressing cares in the 9x12 and 12x15 FRAs on Friday. Good luck for the rest of the week.

Tebogo Mekgwe