Global Markets Daily: Baby, it’s cold outside
Global: Geopolitical tensions could undermine Asia’s foreign relations
SA: SAA restructuring requires R26bn of state support
Rand: USD/ZAR struggles to break lower, battling geopolitical risks and the second wave
Local rates: Foreigners turn sellers pre auction
What to watch today
- JN Trade Balance
- UK CPI (y/y)
- EC CPI (y/y)
- US MBA Mortgage Applications
- US Housing Starts
Covid-19 update
Source: WHO, NICD
Economics and markets
- The sun provides a false sense of warmth to shivering South Africans, as does the promise of added policy stimulus to financial markets.
- Powell cooled expectations by reaffirming the Fed’s view of a slow and protracted economic recovery despite US 2Q data surprising to the upside.
- The uptick in underlying equity benchmarks remains at odds with the socioeconomic reality.
- India and China threaten to undermine foreign relations in a region already stained by political divisiveness.
- The rand, like its compatriots, continues to trade weaker over a five-day period, despite pulling back from this morning’s 17.24 opening level.
- USD/ZAR opens at 17.24; EUR/ZAR at 19.42; GBP/ZAR at 21.68 and CNY/ZAR at 2.43.
Mother nature is in a frightful mood. Spare a thought and a blanket or three for the less fortunate as blustery winds and icy rains gust through SA. The sun provides a false sense of warmth to shivering South Africans, as does the promise of added policy stimulus to financial markets. Still, there is hope that both can lead to brighter days.
The 18% m/m increase in May’s US retail sales, following a relaxation of lockdown protocols, warmed Wall Street’s heart, channelling investments towards value and cyclical sectors. Like the weather, though, market sentiment is fickle. J. Powell cooled expectations by reaffirming the Fed’s view of a slow and protracted economic recovery despite US 2Q data surprising to the upside.
Still, the uptick in underlying equity benchmarks remains at odds with the socioeconomic reality. While Wall Street contemplates a v-shaped recovery, Main Street continues to guard against a resurgence in covid-19 cases, with Florida and Texas noting increases in transmission rates and hospitalisations. Still, the US$1trn infrastructure proposal being bandied about by the Trump administration and the Fed’s purchase of corporate bonds have counterbalanced second-wave concerns, at least in the US.
Asian markets are less impressed, limping along as simmering geopolitical tensions between India and China threaten to undermine foreign relations in a region already stained by political divisiveness. Pan-Asian asset performances are mixed, as are EM enactments, evident in the 0.7% increase in JP Morgan’s EM volatility index measure. The bank’s read of the EM currency complex shows a slightly disparate picture as the grouping is off its Tuesday lows but still hovering below Monday’s high.
The rand, like its compatriots, continues to trade weaker over a five-day period, despite pulling back from this morning’s 17.24 opening level against the greenback. With it being a shortened trading week and corporates wary of hedging risks, there are limited catalysts to drive the currency pair below USD/ZAR17.00, especially as short-dated implied volatility climbs.
Despite murmurings of an advanced level 3 protocol being implemented, which would entail the reopening of restaurants and certain personal services, local markets remain frost bitten. Foreigners remain net sellers of SAGBs, watching from afar as debt concerns break the icy surface ahead of next week’s revised budget. The estimated R26bn of government funding required by SAA as part of its restructuring process adds to an already untenable debt burden as the Treasury contorts its expenditure allocations to accommodate health interventions.
We’re all on the verge of brain freeze. Mother nature, do you have any words of advice?
Nema Ramkhelawan-Bhana
Local rates
Monday was relatively quiet given the holiday yesterday, with bonds opening 10 points higher on the weaker rand. Foreign investors sold around R1bn of bonds, and with locals very quiet, the market was on the back foot all day. Hopefully the rand back at R17.24/$ and good news on the covid-19 front, with a cheap steroid showing good results in tests on serious coronavirus patients in the UK, will continue the recent risk-on sentiment in global markets, which will benefit SA as well. This is especially needed today as the auction awaits this morning at 11am, with the National Treasury again issuing as short as possible but with an interesting skew in the amounts on sale today. Instead of the usual equal split, it has opted for reducing two of the bond sizes and increasing the third, so this morning we have R1.5bn of the R186 and R2032 on offer as well as the larger sized R2030 in R3.1bn.
No major economic data out today either locally or in the US.
Deon Kohlmeyer
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