Waiting game

RMB Markets Daily: Waiting game

Global: US election results largely along traditional lines, swing states are regions most likely to deliver delayed outcomes

SA: A quiet day with only the SA PMI released

Rand: Relative strength to continue in absence of significant domestic releases

Local rates: Rand loses gains

What to watch today

• JN Monetary Base (y/y)
• CH Caixin China PMI Composite
• SA Standard Bank South Africa PMI
• GE Markit Germany Services PMI
• EC Markit Eurozone Composite PMI
• UK Markit/CIPS UK Services PMI
• EC PPI (y/y)
• US MBA Mortgage Applications
• US ADP Employment Change
• US Trade Balance
• US Markit US Composite PMI

Covid-19 update

Source: WHO, NICD

Economics and markets

• US election results are rolling in, with traditional strongholds for the GOP and Democratic party voting as anticipated, and delayed outcomes expected for swing states.
• Markets have responded to the tight race and extended wait with remarkable fortitude as US markets closed higher on Tuesday.
• Asian markets have somewhat followed suite, although the delay of Ant Group’s IPO has injected volatility into trading.
• Covid-19’s spread continues, with the UK’s return to relatively strict lockdown scheduled for midnight.
• The day’s data releases will be dominated by PMI releases, including the SA PMI.
• The rand should continue displaying its current strength in the absence of any major data releases.
• USD/ZAR opens at 16.06; EUR/ZAR at 18.81; GBP/ZAR at 20.96 and CNY/ZAR at 2.40.

Global focus remains squarely on US elections. Relative to previous elections, we will probably be waiting for a while yet before a final result is called. President Trump has won a number of traditionally Republican States, while Joe Biden has scooped traditional Democrat strongholds. Thus, the early results have been low on surprises. It will be the so-called swing states – those where the polls were already uncertain, some of which were turned at the previous election – that seem to hold the key to the final result. Here is the rub: it is exactly these states which will accept postal ballots (with post marks dated the second and third of November – state dependant) for a number of days to come, potentially delaying outcomes. 

Markets have taken these results and the ensuing delay with remarkable fortitude, with gains recorded for the Dow, S&P500 and Nasdaq. S&P500 futures have risen this morning. Asian markets followed suite, albeit with greater volatility and at a more muted pace. This difference, though, could also be a result of the news that Ant Group’s IPO on the Chinese and Hong Kong stock exchanges has been delayed and subjected to new regulatory requirements after founder Jack Ma spoke to regulators during supervisory interviews and found there to be major regulatory issues. Ant Group’s IPO could be delayed by as many as six months. This has had a profound impact on the share valuation of Alibaba, which has a one-third stake in the group, plummeting by as much as 9% on the NYSE. 

In the background, the spread of covid-19 continues, seemingly unchecked in some areas. The US continues to see elevated infection rates relative to its summer wave, and France has seen a jump in daily deaths to the highest level since mid-April. Boris Johnson is set to push new lockdown regulations, slated to start at midnight, through parliament in an attempt to slow the spread of covid-19 and ease the demand on the pressured health system. 

In data releases, a spate of services and composite PMI figures will be released, providing further insight into the global recovery from covid-related lockdowns, although these are unlikely to reflect recent lockdowns and could thus be the last positive move before some countries see PMIs falling once again. 

SA has so far avoided the need for an additional lockdown, which bodes well not only for today’s PMI release but also the November print. The rand will probably continue to show remarkable fortitude in the absence of substantial domestic data releases and because the economy remains open relative to European peers. Although I have no doubt that domestic policymakers are eyeing the summer break – beginning mid-December – with some concern, as it is the silly season in SA when people descend on holiday destinations in droves and the likelihood of super-spreader events rises. This will probably be the main focus of the President’s next address to the nation, which is expected sometime in the coming days. 

Siobhan Redford

Local rates

The market continues to trade with caution ahead of what appears to be a tighter than expected race in the US election, with the local currency reversing some of its gains from yesterday as we start the day off with a wide bid/offer spread. The local currency weakened to 12.35 in the Asian trading session and hovers just above 16.20 this morning. Emerging market bonds and equities have shown subdued activity from the beginning of the week, while the domestic SAGB auction was well attended yesterday as it cleared relatively stronger than market. The R2030s cleared at 9.30 (market 9.32) with a healthy bid-to-cover ratio of 2.88, the R2035s cleared auction at 11.17 (market 11.18) at a bid-to-cover ratio of 2.10 while the R2040s cleared auction at market (11.61) with a 1.86 bid-to-cover ratio. On the interest rate derivatives desk, we saw receiving interest sub 5-yr on the swap curve, while we had some local real money receiving front end of the FRA curve. 

Tebogo Mekgwe