“Ill-mannered” politics

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“Ill-mannered” politics

GM Daily: “Ill-mannered” politics

Global: Market movements dominated by quarter-end rebalancing

Domestic: “Good” bad news

Rand: Volatile around 17.00 to the US dollar

Local markets: R2030s surprise package

What to watch today

UK Lloyds Business Barometer
JN Retail Sales (y/y)
CH Manufacturing PMI
GE Retail Sales NSA (y/y)
UK GDP (y/y)
SA Money Supply M3 (y/y)
SA Private Sector Credit (y/y)
GE Unemployment Change (000's)
SA CPI
SA Trade Balance Rand
SA Monthly Budget Balance
US GDP Annualized (q/q)
US GDP Price Index
US Pending Home Sales NSA (y/y)

Covid-19 update

Source: WHO, NICD

Economics and markets

The first debate by presidential nominees for this year’s US election, held last night, has been described as “ill-mannered”.
Market movements today will probably be dominated by quarter-end rebalancing and the response to further positive data releases out of China as its PMI remained in expansionary territory in September.
The rand will continue to exhibit substantial volatility and trade slightly stronger than yesterday, around the 17.00 level against the US dollar.
In “good” bad news, yesterday’s second quarter unemployment surprised by printing the lowest level for the current survey – 23.3%. This is very much a move in the opposite direction to what was anticipated.
In a data-heavy day, we can expect the release of August’s CPI, trade balance and government budget balance.
USD/ZAR opens at 16.94; EUR/ZAR at 19.88; GBP/ZAR at 21.79 and CNY/ZAR at 2.48.

Politics is very much in focus in the US and UK right now. The first debate by presidential nominees for this year’s US election, held last night, has been described as “ill-mannered”. In between interruptions and name-calling, some issues were discussed. The candidates showed how divergent their views were, particularly on healthcare, the supreme court, the economy and covid-19. President Trump also did not commit to accepting the election results and skirted around condemning white supremacy groups. US futures have fallen in response to last night’s event. However, market movements today will probably be dominated by quarter-end rebalancing and the response to further positive data releases out of China as its PMI remained in expansionary territory in September.

In line with these varied events and outcomes, the Nikkei and ASX have both fallen significantly during today’s session, followed weakly by the Shanghai Composite Index, while the Hang Seng is on track to end the final trading day of the month in the green. The domestic bourse will probably follow a similar path to most markets, closing the day and the month in the red. The rand will continue to exhibit substantial volatility and trade slightly stronger than yesterday, around the 17.00 level against the US dollar.

Returning our focus to politics, in the UK, Boris Johnson faces a possible defeat in his bid to extend emergency powers related to the pandemic, as members of his own party threaten to vote against him should he not agree to give further time to lawmakers to review restrictions imposed under these powers. Boris Johnson continues to have to split his focus between the covid-19 response and Brexit, with the latest overture by the UK negotiation team not being accepted by the EU. Time is ticking down for an agreement to be reached.

Domestically, politics seems to continue with business as usual, and at this point less chaotic than in the north. This at least allows us to focus on the real issues – covid-19 infections (as well as trying to figure out if and when the second wave will hit our shores), corruption and, very importantly, the economy. Yesterday’s second quarter unemployment surprised by printing the lowest level for the current survey – 23.3%. This is very much a move in the opposite direction to what was anticipated. However, I will term this “good” bad news. On the surface, it is good news, but digging a little deeper, the details show how problematic this outcome actually is. South Africa’s labour force declined by five million people from the first to second quarter. This probably represents people not searching for work but temporarily not working due to lockdown – the question is, how will this change as lockdown has eased? The labour force should increase as the opportunity to return to work, or to search for work, has returned, but employment, which saw a drop of 2.2 million people in the second quarter, is unlikely to increase proportionately, which will then push our unemployment rate higher.

There will be quite a bit of data released during the course of today, with August’s CPI alongside the monthly trade balance and government budget balance. Private sector credit extension data has already been released this morning and shows a continued moderation in the annual growth rate of credit in August. This suggests that even very low interest rates are not stoking higher credit extension, with demand and supply for credit probably declining.

On that note, brace yourself for a rather unseasonal cold front, which will hopefully bring the northern parts of SA some much needed rain. I hope you haven’t packed all your winter clothes away just yet!

Siobhan Redford

Local rates

The R2030s were certainly the surprise package in yesterday’s nominal auction, with the National Treasury issuing R186s, R2030s and R2037s. While there has been better demand for longer-dated stock in the previous auctions, yesterday’s auction was relatively well attended with a fair amount of interest from both local and offshore real money accounts. The R186s cleared auction at 7.26 (market 7.26) with a bid-to-cover ratio of 3.25, the R2030s cleared at 9.46 (market 9.48) with a bid-to-cover ratio of 4.14, while the R2037s cleared auction at 11.47 (market 11.46) with a bid-to-cover ratio of 2.20. Flows across the nominal and linker desks remain relatively timid, but we had local real money buying R2040s and R2037s after the auction while the linker market attracted better sellers on the day albeit in moderate sizes. The Interest Rate Derivatives market is also relatively quiet, but local real money had receiving cares for the front end of the FRA curve while the options desk had made pricing in some call spreads. The market remains relatively skittish at the moment with the local currency flirting with the 17.00 handle. Emerging market bonds are still being sold since the start of this week. Good luck for the rest of the day.