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Global: US lawmakers grapple over new stimulus package as clock ticks

SA: SA’s request for an IMF loan approved

Rand: Benefitting from dollar weakness

Local rates: Quiet Monday as we head into auction

What to watch today

JN PPI Services (y/y)
SA Non-Farm Payrolls
US Board Consumer Confidence
US Richmond Fed Manufacturing Index

Covid-19 update

Source: WHO, NICD

Economics and markets

The IMF board has approved SA’s request for a US$4.3bn loan under the Rapid Financing Instrument.
The rand and other EM currencies continue strengthening on the back of a weaker dollar.
Asian markets have been relatively listless today as data releases are thin, so global market movements will be driven by news.
SA’s 1Q20 non-farm payrolls will be released today and should reflect a deteriorating labour market in a quarter in which unemployment breached 30%.
USD/ZAR opens at 16.42; EUR/ZAR at 19.30; GBP/ZAR at 21.16 and CNY/ZAR at 2.35.

By far the best news out yesterday for SA was the IMF board approval of the request for a US$4.3bn loan under the Rapid Financing Instrument. The IMF’s announcement placed emphasis on the need for SA to implement structural reform and return the country’s debt to sustainable levels. The rand has responded positively, strengthening during the trading day, not only on the news of the IMF agreement but in line with general EM currency strength on the back of dollar weakness.

The ALSI closed Monday’s trading session 1.2% higher, driven by a robust performance in commodity-linked shares as gold miners gained 8.7%. For the year, South African gold mining companies have seen a 134% increase as investors have flocked to safe-haven assets. In Asia, a fairly listless trend is being observed, with the Nikkei and ASX slightly negative, while the Shanghai, Hang-Seng and India’s BSE are all slightly positive. Data releases are thin for the day, so driving markets will be news – particularly on the progress of talks between the GOP and Democrats over a new stimulus plan for the US and any further geopolitical relations or covid-related progress, while we wait for Wednesday which will bring the Fed’s latest decision.

SA’s data deluge for the week begins with 1Q20 non-farm payrolls and it will be interesting to see how employment fared during SA’s third consecutive quarter of negative growth. Judging by the increase in unemployment to above 30%, it is unlikely to be a particularly positive report.

In the meantime, as SA expects a significant inflow of capital as a result of the IMF loan, South Africans will be watching closely to see how the government deals with the many accusations of covid-19 relief-related corruption. Leaders have threatened action, but these will remain just words until action is observed.

Siobhan Redford

Local rates

Monday proved to be something of a rest day as we head into today’s auction. Despite a strong day for the rand, improving nearly 15c on the day to the US dollar, the R186 only manage a 5-point yield gain to 7.43% by the close.

We expect the market to continue its bid bias as we head into Friday’s big coupon flow of around R28.6bn with one of the bonds on auction today, the R2030, one of four bonds paying out at the end of the week. Also available today will be the R186 and R2030, so the National Treasury will again have tried to keep the average maturity of the auction as low as possible. With the big coupon flow this week and the rand continuing to improve against the greenback (albeit mostly due to US dollar weakness – heading for its worst month in about nine years), we expect the auction to be well supported, with the R186 and R2030 in particular clearing 2-3 points through market and potentially less excitement on the longer R2032, but not by much.

Locally, we have non-farm payroll numbers out today, with mostly secondary numbers out in the US.