Politics trumps data

GM Daily: Politics trumps data

Global: Trump’s health of key concern

SA: Political week dominates data week

Rand: Leading the EM pack

Local rates: Rand strength into the new week

What to watch this week

Monday

• JN Jibun Bank Japan PMI Services
• UK Official Reserves Changes
• SA Standard Bank South Africa PMI
• GE Markit Germany Services PMI
• EC Markit Eurozone Services PMI
• EC Markit Eurozone Composite PMI
• UK Markit/CIPS UK Services PMI
• EC Retail Sales (y/y)
• US Markit US Services PMI
• US ISM Services Index

Tuesday

• GE Factory Orders WDA (y/y)
• GE Markit Germany Construction PMI
• UK Markit/CIPS UK Construction PMI
• US Trade Balance
• US JOLTS Job Openings

Wednesday

• JN Leading Index CI
• JN Coincident Index
• GE Industrial Production WDA (y/y)
• SA Gross Reserves
• SA Net Reserves
• UK House Price Index (y/y)
• UK Unit Labor Costs (y/y)
• SA SACCI Business Confidence
• US MBA Mortgage Applications
• US FOMC Meeting Minutes
• US Consumer Credit
• CH Foreign Reserves

Thursday

• UK RICS House Price Balance
• JN Trade Balance BoP Basis
• JN Eco Watchers Survey Current SA
• JN Eco Watchers Survey Outlook SA
• GE Trade Balance
• US Initial Jobless Claims
• US Continuing Claims

Friday

• UK Monthly GDP ((m/m))
• UK Industrial Production (y/y)
• UK Manufacturing Production (y/y)
• UK Trade Balance GBP/Mn
• US Wholesale Trade Sales (m/m) 

Covid-19 update

Source: WHO, NICD

Economics and markets

• Outcomes of ANC Legotla to be disclosed in media briefing later this week.
• What’s needed though is a strong political will to enact meaningful change that stimulates sustainable, all-inclusive growth.
• Data cannot distract from rhetoric this week. The parliamentary calendar is littered with finance submissions.
• The preservation of democracy is all-important in the global debate as we approach the US presidential elections.
• Markets will pivot on news of Trump’s health.
• USD/ZAR opens at 16.54; EUR/ZAR at 19.38; GBP/ZAR at 21.40 and CNY/ZAR at 2.43.

The fly on the wall analogy isn’t as effective in a digital world, but it’s the thought that counts as we contemplate the outcomes of the ANC’s virtual Legotla. There is no shortage of talking points as the economy languishes in the depths of negative growth. Land reform, immigration, healthcare, fiscal consolidation, structural reform – the list is endless. What’s needed though is a strong political will to enact meaningful change that stimulates sustainable, all-inclusive growth. This, at least, is the sentiment that the market will look to be expressed at the ruling party’s socially distanced media briefing later this week. 

Data cannot distract from rhetoric this week. There are only three data points of note: the SARB’s reserves holdings, SACCI business confidence and the whole economy PMI, each providing evidence of economic and or financial stability in 3Q20 – a probable outcome after the fragile start to the year. 

The parliamentary calendar is littered with finance submissions – a normal occurrence ahead of the Medium-Term Budget Policy Statement. A point of departure will be the Home Affairs briefing on the Constitutional Court’s April ruling on the barring of independent candidates from standing in the elections – a decision deemed unlawful. A stark reminder of the importance of the rule of law in a democratic society. 

The preservation of democracy is all-important in the global debate as we approach the US presidential elections. The incumbent’s health is as, if not more, crucial to financial markets than polling. Merely days after being diagnosed with covid-19, the president’s public appearance contradicts conflicting accounts from his medical team, rousing uncertainty over when he will be fit to return to work and his re-election campaign. Markets are banking on a swift recovery, at least that’s what the indicators suggest. 

Equities futures in Europe, Asia and the US are rising, carrying the EM universe alongside them as traditional safe-haven assets wilt. That leaves the rand frolicking below 16.50 against the greenback, 0.5% stronger than its opening level, with similar gains evident against the euro and pound crosses. That appears to be the trend across the EM spectrum, barring a handful of currencies in Latam that are struggling to make the grade. 

We’re only a few hours into this week’s trading session though and caution is warranted, especially as political sparring continues between the UK and European Commission. Pound assets are in flux due to key disagreements over fishing rights and state aid. The clock is ticking on this one. 

Nema Ramkhelawan-Bhana

Local rates

With the local currency opening 30c stronger today in comparison to Friday’s 16.77 open, the South African rand remains vulnerable ahead of the upcoming US elections four weeks from now. Front-end implied volatility is pricing in the event as the 1-month at-the-money level is middling at 19.30, up from Friday’s 18.00 handle. The rest of the EM currencies are skittish, despite the global risk-on sentiment, as general liquidity remains a challenge. That being said, EM bonds had significant inflows on Friday after consecutive days of outflows. 

Locally, real money accounts were better buyers of SAGBs, with the bulk of the interest coming from the back end of the curve, despite this, flows are relatively timid across the rates desks. On Friday, the National Treasury came to market and issued I2025s, I2029s and I2046s, which all cleared at market. The I2025s cleared at 3.04 (market 3.03) at a bid-to-cover ratio of 1.07, the I2029s cleared auction at 4.25 (market 4.25) with a bid-to-cover ratio of 1.79, while the I2046s cleared auction at 4.85 (market 4.85) with a bid-to-cover ratio of 1.24. The issued sizes were 365m, 540m and 1,095m, respectively. Good luck out there! 

Tebogo Mekgwe