What’sinatweet?

Global Markets Daily: What’s in a tweet?

 

Global: Trump provides reassurance, for once

SA: Could infrastructure be the answer?

Rand: Trading in tight range ahead of the revised budget

Local rates: Auction participation ahead of budget should be telling of investor sentiment

 

What to watch today

 

• JN Jibun Bank Japan PMI Mfg
• SA Leading Indicator
• GE Markit/BME Germany Manufacturing PMI
• EC Markit Eurozone Manufacturing PMI
• UK Markit UK PMI Manufacturing SA
• SA South Africa Unemployment
• US Markit US Manufacturing PMI
• US New Home Sales
• US Richmond Fed Manufact. Index

 

Covid-19 update

Source: WHO, NICD

 

Economics and markets

• Seven timely words from @realDonaldTrump, “The China trade deal is fully intact”, reassured panicked investors.
• Despite the sensationalism, sentiment is holding relatively firm as volatility recedes.
• Economic data is progressively surprising to the upside in economies that are systemically important to global trade.
• With most of the good news already priced into local yields, investors will look to the NT for guidance.
• The rand is once again of little help to the local bond market, meandering in a modest range.

 

I’m usually quite dismissive of Trump tweets. Brash in their nature, the President’s comments tend to unnerve already anxious markets. And yet, seven timely words from @realDonaldTrump, “The China trade deal is fully intact”, reassured panicked investors after a presidential aide hinted at a severing of ties. Amid the covid-19 panic, murmurs of US-Sino trade tensions (on Fox news I might add) are as disquieting as they were a year ago. Markets are resilient though, bouncing back quite quickly after Washington clarified its stance, overlooking the earlier losses on Wall Street. 

Despite the sensationalism, sentiment is holding relatively firm as volatility recedes. You might wrinkle your forehead in disbelief as currency and equity counters are thrown about, but the movements in the S&P 500 Index and US treasuries have been less erratic over the last 10 days. Could this imply that the flight to safety is fast becoming the exception rather than the norm? That depends on the trigger. A casual comment by an influential politician or policymaker might not be walked back as quickly as Navarro’s was overnight. Fears of a second wave are not easily dispelled. And we are left wanting of steady signs of a real economic recovery. 

True, economic data is progressively surprising to the upside in economies that are systemically important to global trade. Though that needs to translate into better real income growth and corporate profitability before investors are willing to wager a greater proportion of their portfolios on riskier trades. Domestic participants are driven by the same animal spirits, awaiting tomorrow’s budget revisions before immersing themselves more fully in SA risk. With most of the good news already priced into local yields, investors will look to the NT for guidance on additional funding mechanisms. The possibility of additional issuance is unnerving, though the NT could follow alternative paths which would be more palatable to investors. Yet there is a healthy air of scepticism which might persist well after the budget is announced, keeping investors at bay.  

The rand is once again of little help to the local bond market, meandering in a modest range amid thinner flows. Despite testing the 17.25 level against the US dollar yesterday, the local unit is struggling to reprise May’s stellar performance. Indeed, the EM complex is less well bid as participants begin to view idiosyncratic risks alongside global determinants. Implied rand volatility is starting to ease across the curve after a week of persistent increases, which is reassuring, though spot remains vulnerable to sporadic bouts of risk aversion. 

South Africans need a win and perhaps a move toward more sustainable and growth-enhancing infrastructure will do that. With any luck, today’s symposium in Pretoria will reveal just that. We could do with a touch of good news or a well-timed tweet. After all, if you have something to say, say it in 280 characters or less. 

Nema Ramkhelawan-Bhana

 

Local rates

Bonds opened under pressure on Monday morning after some potential budget numbers were released at Nedlac on Friday. The curve steepened further, with the ultra-long bonds losing 8bp on the day. Turnover was incredibly light on the day, showing the lack of conviction in direction for SAGBs currently as market participants wait for more concrete details in the budget.  

Today’s weekly auction should provide a good litmus test of investor sentiment going into the budget. With R2030s, R2035s and R2048s on offer, the market should favour the front end of the curve given recent secondary market activity. The non-comp options offer value over Wednesday’s budget, so we could see yields clear through market mids as investors pay up for optionality.

With the lack of any other significant data to drive markets, bonds should take their cue from the auction demand. The market will also keep a keen eye on a conference led by President Cyril Ramaphosa which is aimed at attracting investments into new infrastructure projects, with talk of a green infrastructure bond doing the rounds.

Michelle Wohlberg