What a difference a day makes

GM Daily: What a difference a day makes

Global: Tik tok, tik tok. US TikTok operations under fire

SA: President prioritises anti-corruption drive

Rand: Local unit trading wide of EM peers, weakening to a greater extent

Local rates: Offshore selling continues

What to watch today

• JN Tokyo CPI (y/y)
• JN Monetary Base (y/y)
• EC PPI (y/y)
• US Durable Goods Orders

Covid-19 update

Source: WHO, NICD

Economics and markets

• The Monday blues has given way to a cheerful Tuesday tone as global stocks reassert their dominance.
• Geopolitical risk is being taken in its stride.
• President Trump has resolved to take matters into his own hands to prevent evictions and possibly extend unemployment benefits through an executive order.
• Greater US fiscal stimulus, regardless of its form, will provide a continued lift to already improving activity.
• The local unit has weakened to a far greater extent than its EM peers.
• USD/ZAR opens at 17.19; EUR/ZAR at 20.22; GBP/ZAR at 22.48 and CNY/ZAR at 2.45.

What a difference a day makes. I’ve often used this turn of phrase, but it rings true. The Monday blues has given way to a cheerful Tuesday tone as global stocks reassert their dominance, rallying strongly on tech gains. The Nasdaq 100 set yet another record while Europe’s Stoxx 600 recorded its most robust day since mid-June, and the DAX registered its biggest one-day bounce in four weeks. Geopolitical risk is being taken in its stride as the clock runs down for TikTok’s US operations to accept an offer of purchase from a local firm or risk being banned by the mighty Trump, intent on reasserting his power as commander in chief ahead of the elections. 

While the Republicans and Democrats continue their tiresome back and forth over a stimulus package, the president has resolved to take matters into his own hands to prevent evictions and possibly extend unemployment benefits through an executive order. Whether to strongarm the Democrats or win over a disillusioned electorate, Trump’s actions have enthused market participants. 

Greater fiscal stimulus, regardless of its form, will provide a continued lift to already improving activity reflected in the surge in manufacturing activity in July, further fuelling the exuberance in local equities. But as we’re constantly reminded, one day does not make a trend and in the absence of meaningful market-moving data, murmurings between the US and China and TikTok talk will dominate the fold. 

With the Bloomberg dollar index little changed and EUR/USD firm at 1.17, one would expect the spot rand to have retraced to 17.00 against the greenback. And yet, we find ourselves teetering at USD/ZAR17.20. The balance of risks suggest trade north of current levels with resistance evident at 17.30, while support is offered at 17.10 and 16.85. The local unit has weakened to a far greater extent than its EM peers, outpacing losses in the Russian rouble and the Turkish lira against the greenback. If its underperformance persists, then the risk of exaggerated moves above 17.30 increases. 

The rand vol market is incredibly bid with most of the activity on the front of the curve in line with the changes in the spot rate. One-month implied USD/ZAR volatility climbed to a six-week high on Monday while the 25-delta risk reversal widened to 225bp. An expression of a bias for weakness despite the continued search for yield. 

Idiosyncratic risk could begin to reflect in market pricing as we near October and the all-important MTBPS. Limp activity, fiscal distress and ongoing claims of corruption are weights upon the government’s shoulders. There are encouraging signs though, as the President reaffirms his commitment to rooting out graft, IFI flows are forthcoming to assist the NT in funding the gaping budget deficit and the first batch of remdesivir is made available to private healthcare facilities for the treatment of severely ill covid-19 patients. Whether these actions culminate in a positive turn in sentiment remains to be seen. 

Perhaps another day will make even more of a difference. 

Nema Ramkhelawan-Bhana

Local rates

Offshore investors were again sellers yesterday of around R1.5bn in bonds, which saw yields stable on the shorter R186, but the curve steepening some 5-7 points. Holdings data from the National Treasury show that despite overall purchases of around R8.4bn last month, foreign clients’ holdings as a percentage has dropped to 30.1% from 30.5% in June, due to the increased issuance the market is faced with. This is in stark contrast to the high of 42.8% barely two years ago and is a return to levels last seen in 2012. The continuous downgrades by all three ratings agencies seem to be having the effect of taking SA off the radar for many offshore investors despite the attractive yields on offer. It remains to be seen whether local investors can take up the issuance slack created by the reduction in offshore investor interest. 

In this regard, today’s auction will again be closely watched to see how easily the market absorbs the R6.6bn on offer across the R186/2032/2048 strip, with especially the R2048 of interest given the long maturity but attractive yields. 

No local data out today but watch for US Factory and Durable goods order data out this afternoon at 4pm. 

Deon Kohlmeyer