GM Daily: “End of the beginning”
Global: Deadline looms for Brexit negotiations
SA: A meeting of minds?
Rand: Slowly weakening past 17.50
Local rates: Quiet Monday before the auction excitement
What to watch today
- US Housing Starts
Covid-19 update
Source: WHO, NICD
Economics and markets
- Today they will kick off a new round of face-to-face negotiations on the terms of the UK’s exit from the economic bloc. The deadline looms ever nearer as the EU needs 11 weeks for ratification before the 31 December deadline.
- Germany is considering extending employment subsidies to 24 months, and it would seem pressure is mounting on the UK to consider extending its furlough programme.
- The absence of a new US fiscal stimulus package has prevented the S&P 500 from achieving a new record high.
- Global markets, in the absence of significant data releases, are displaying lacklustre and relatively directionless performance.
- The rand has weakened and started today just above the 17.50 mark, on track to record a typically weak August.
- USD/ZAR opens at 17.52; EUR/ZAR at 20.79; GBP/ZAR at 22.95 and CNY/ZAR at 2.53.
August remains a relatively quiet month for markets, as while SA sees spring being ushered in by a windy month, Europe, the US and much of the Northern Hemisphere take a break to enjoy the last days of summer. A break, though, does not resolve outstanding issues, something which the Brexit negotiators from the UK and European Union (EU) know all too well. Today they will kick off a new round of face-to-face negotiations on the terms of the UK’s exit from the economic bloc. The major sticking points seem to be on the EU’s access to UK fishing waters and ensuring a “level playing field” through the UK remaining bound to some extent to the EU’s rules. The deadline looms ever nearer, over four years on from the referendum result, as the EU team needs 11 weeks to get ratification of any deal, and to ensure that it is completed before 31 December when the status quo falls away.
The world of the Brexit referendum was very different to the one we face today and while the negotiators of the conditions are hopefully looking at the beginning of the end, the global economy is only really starting to face the “end of the beginning”. I borrow the phrase from Michael Sachs, deputy chairperson of the Financial and Fiscal Commission (FFC), who used it to discuss the commission’s assessment of the SA government’s response to the covid-19 shock. Effectively, SA is only really starting to see the extent of the economic impact of lockdown. We are not alone though, as normally fiscally conservative Germany is considering extending employment subsidies (implemented in response to the pandemic) to 24 months, and it would seem pressure is mounting on the UK to consider extending its furlough programme as it is meant to wind down.
In the US, we still await a new fiscal stimulus package, and any sign of an agreement will cut the summer break of US policymakers short. It is this lack of agreement that seems to be preventing the S&P 500 from achieving a new record high and sees the rest of global markets displaying lacklustre and relatively directionless performance. SA will probably follow a similar trend, with perhaps a small bias towards growth spurred by resource stocks. The rand has weakened and started today just above the 17.50 mark, on track to record a typically weak August.
What could change these expectations? Not today’s data releases, which are minimal. However, SA continues to face the prospect of load-shedding, and the more often this happens, the worse it will be for any kind of economic recovery from a dismal second quarter. However, the economic policy head for the ANC, Enoch Godongwana, has tried to allay the fears of both labour and business that the ANC is eyeing pension fund money to bail out SOEs, but rather seems keen to amend regulation 28 to allow pension funds to invest in (profitable) infrastructure projects. This does seem to signal a meeting of minds of sorts between SA’s political behemoth and the private sector.
Also, I have no doubt if you venture out today to the stores, especially sellers of alcohol and tobacco, that you may be a bit confused by the idea that SA’s economy won’t bounce back. It is, after all, the first day in a long time that these goods will be available (at least legally) at stores, and at a relatively reasonable price, and so retail patronage should receive a significant boost. It will be the long-term trends that tell all though.
Siobhan Redford
Local rates
We are getting used to quiet Mondays in the local bond market (average turnover basically doubles from Monday to Tuesday) and yesterday was no exception, with only R21bn in turnover recorded as opposed to the daily average of around R40bn. This lack of liquidity as well as today’s looming auction saw the market trading some 10 points weaker on the day, with the benchmark R186 ending the day at 7.45% after opening at 7.35%. The curve was also under pressure initially but managed to end the day around 2 points flatter as it tends to do in a quick sell-off like we had yesterday.
Today’s auction is an interesting one, with the National Treasury trying to keep the average maturity as low as possible with the inclusion of the R186 and R2032, but gambling somewhat that the attractive yields near 11.50% will ensure there is reasonable demand for the ultra-long R2048 which is also included in the mix. We expect all three to clear reasonably well and not to have a repeat of last week’s R2037 result when it cleared 10 points above the market.
Besides the auction, we have very little in the way of further excitement today as both local and US economic data calendars are pretty empty.
Deon Kohlmeyer
loading form...
