Peace at last?

GM Daily: Peace at last?

Global: Israel, the UAE and Bahrain to normalise relations

SA: UIF TERS payments halted

Rand: Having pushed through the 16.50 level, will rely on continued dollar weakness to remain there

Local rates: Ultra-long clears strong in the auction 

What to watch today

• JN Trade Balance
• UK CPI (y/y)
• UK Retail Price Index
• UK PPI Input NSA (y/y)
• UK House Price Index (y/y)
• EC Trade Balance SA
• US MBA Mortgage Applications
• SA Retail Sales
• US Retail Sales Advance (m/m)
• US NAHB Housing Market Index
• US FOMC Rate Decision 

Covid-19 update

Source: WHO, NICD

Economics and markets

• Israel, the UAE and Bahrain have entered into a deal to normalise relations.
• The FOMC’s decision is the highlight of the day as it will be the first since the announcement of the Fed’s new monetary policy strategy.
• The Fed has already added significant accommodation to the US economy this year though, and it will be its response to the improving economy where we should see some change.
• The BOE’s latest decision will be delivered tomorrow and will reflect the committee’s assessment on its role in helping the UK transition to a post-covid economy as well as a possible no-deal Brexit.
• Markets will probably remain relatively directionless during the course of today until the announcement of the Fed’s decision.
• the rand has benefitted from a weak dollar and pushed below the 16.50 level against the greenback yesterday.
• The UIF has stopped paying out under TERS as it tried to verify the IDs of applicants after the Auditor General highlighted a number of irregularities in payments already made.
• USD/ZAR opens at 16.45; EUR/ZAR at 19.50; GBP/ZAR at 21.21 and CNY/ZAR at 2.43.

Peace at last – or is it? At the very least, the news that Israel, the UAE and Bahrain have entered into a deal to normalise relations is a step in the right direction. There are still many details to be formally threshed out, and for the Middle East as a whole to become a region known for peace rather than conflict there are several other countries in the region that need to come, or be brought, to this table. During a year flooded with bad news, this will be some of the good news, especially if more progress can be made. Further, recognition must be given to President Donald Trump for his role in fostering this outcome, no doubt a feather in his cap he’ll be showing off during his presidential campaigning. Another leader who is pursuing a path of peace of sorts will be Boris Johnson, who has begun discussions with members of his party who have expressed serious concerns about his intention to unilaterally change the agreement with the EU on Brexit in an effort to gain their support. This will probably be a rocky path. 

Today’s big event is the announcement of the Fed’s latest monetary policy decision and the focus will be on any changes in policy or at least communication that indicates how its policy may change given its new strategy. The Fed, though, has added significant accommodation to the US economy this year, and thus it will be its response to the improving economy where we should see some change. Although, as further fiscal stimulus to the US economy remains absent, the Fed is currently the body which will have to do the heavy lifting to continue supporting the recovery. In contrast, the BOE faces a situation in which the Treasury is hinting at providing further support to the British economy in the event it is needed as the furlough programme is due to come to an end soon. The BOE’s latest decision will be delivered tomorrow, but even with the government expected to extend support to the economy, it will have to contemplate its role in helping the UK transition to a post-covid economy as well as a possible no-deal Brexit. 

Markets will probably remain relatively directionless during the course of today until the announcement of the Fed’s decision. Yesterday, US markets were mixed, with the Dow closing almost flat, but the Nasdaq and S&P 500 recording positive growth, effectively regaining some ground lost earlier this month. The Nikkei has recorded a modest increase today, while the ASX has seen a marked improvement in today’s trading, up over 1%. In Hong Kong and China, the bourses are both down for the day, however also at relatively modest levels. The JSE recorded modest declines yesterday, and this could continue today. However, the rand has benefitted from a weak dollar and pushed below the 16.50 level against the greenback yesterday. 

Locally, the retail sales data for July will be released and will give us some insight into how retail sales fared as the economy saw lockdown levels ease. September’s retail sales could take a knock if the TERS support provided by government has been supporting consumer purchases. This, as the UIF has stopped paying out under TERS as it tried to verify the IDs of applicants after the Auditor General highlighted a number of irregularities in payments already made. 

Speculation surrounding the move to lockdown level 1 remains rife and, as our new infection figures improve, will hopefully become a reality sooner rather than later. 

Siobhan Redford

Local rates

Waking up to a stronger rand is an all too familiar story with the local currency. Albeit a positive story, there is a tone of mild caution on the rand rally, considering that other emerging market currencies did not follow suit. The rand was the standalone outperformer against the greenback without any material domestic or global news. The one-week implied volatility has been opening higher at the start of each trading day but closer lower on the day, and we do not anticipate any trend deviation today as the one-week is at 16.87 this morning, up from a 16.50 close yesterday. Despite the strong auction, yesterday was a relatively quiet day in the rates market with local real money looking to pay sub-7-yr in anticipation of the MPC meeting. With a 25bp cut a possibility, there is scope for more paying cares to come to the fore. We had some local receiving longer than 15-yr, while local fast money expressed interest in 1x4 and 21x24 on the FRA curve yesterday. Offshore accounts were net better buyers of local bonds ending a string of net selling since Friday. On the auction front, the R2032s cleared auction at 10.18 (market 10.18) bid-to-cover ratio 2.27, the R2037s cleared auction at 11.1850 (market 11.19) with a bid-to-cover ratio of 2.09 while the R2048s cleared auction at 11.32 (market 11.3750) with a bid-to-cover ratio of 3.06. Good luck out there. 

Tebogo Mekgwe