Interference

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Interference

GM Daily: Interference

Global: Brexit talks resume

SA: New covid-19 cases rising

Rand: Slow news day could see rand steady below 16.40 to the US dollar

Local rates: Curve flattening

What to watch today

JN Tokyo Dept Store Sales (y/y)
GE GfK Consumer Confidence
EC Govt Debt/GDP Ratio
US Initial Jobless Claims
US Continuing Claims
US Bloomberg Economic Expectations
US Bloomberg Consumer Comfort
US Leading Index
EC Consumer Confidence
US Existing Home Sales
US Existing Home Sales (m/m)

Covid-19 update

Source: WHO, NICD

Economics and markets

Markets have responded poorly to news out of the US that Iran and Russia are, independently, attempting to interfere in the US elections.
In response, the Dow, S&P 500 and Nasdaq closed lower by 0.35%, 0.22% and 0.28%, respectively, while the US dollar has also weakened.
On the other hand, Brexit talks will resume today, after the EU emphasised the importance of British sovereignty.
The pound has strengthened and, unlike the rand’s stronger opening levels against the dollar, euro and yuan, this has resulted in the rand opening weaker against the pound relative to yesterday.
New covid-19 cases in SA increased to above 2,000 overnight. To maintain our newly returned freedoms and prevent a substantial second wave, we will need to act responsibly, otherwise the government will be forced to step in.
USD/ZAR opens at 16.33; EUR/ZAR at 19.36; GBP/ZAR at 21.46 and CNY/ZAR at 2.45.

Today will probably be a lot like the rest of the week – quiet on the data front (although the release of US weekly initial jobless and continuing claims will be interesting) and heavily focused on politics, geopolitical relations and responses to surges in covid-19 infection rates. From next week Wednesday though, there will be a sudden burst of action, beginning with the release of SA’s MTBPS (which, had the original schedule been followed, we’d be discussing this morning) and, less than a week later, the US presidential election.

Markets have responded poorly to news out of the US that Iran and Russia are, independently, attempting to interfere in the US elections. It would seem that voter registration data is publicly available and these two foreign powers are trying to influence voters’ choices. Interestingly, it appears each country’s preferred victor is different, with Iran trying to push for a Biden victory and Russia seeming to prefer a Trump re-election. The concern is that, in the event of a close outcome between the two candidates, this interference could be used to contest the results. In response, the Dow, S&P 500 and Nasdaq closed lower by 0.35%, 0.22% and 0.28%, respectively. These concerns have pushed Asian markets lower too. The US dollar has weakened as well, which no doubt contributed to the rand strengthening to comfortably below 16.40 against the greenback. On the other hand, Brexit talks will resume today, after the EU emphasised the importance of British sovereignty. This has pushed the pound stronger and, unlike the rand’s stronger opening levels against the dollar, euro and yuan, has resulted in the rand opening weaker against the pound relative to yesterday. No doubt many British and European businesses are relieved that these talks have resumed.

It appears that the talks between Nancy Pelosi and Steven Mnuchin continue to progress, albeit slowly. It seems that they are also coming to terms that, even if a deal was agreed to (and requisite legislation drafted) soon, it is increasingly probable that the bill would only be taken through the approval process after the US elections. Nonetheless, an agreement, when announced, will be well received by markets, buoying sentiment not only in the US but globally.

A balancing factor will probably be the continued progress (or perhaps regress) of the spread of covid-19 in a number of countries, as second wave fears materialise in parts of the US and increasingly across Europe. South Africans need to observe what is happening abroad, particularly the reimposition of social distancing and preventative measures which will have economic consequences. This will be an important lesson, which we can choose to learn through other people’s mistakes, or the hard way, personally. Particularly as new cases in SA increased to above 2,000 overnight. To maintain our newly returned freedoms and prevent a substantial second wave, we will need to act responsibly, otherwise the government will be forced to step in.

The real action today will come much later when the final presidential debate between President Trump and Joe Biden takes place. President Trump has voiced his displeasure at the topics chosen, which do not include foreign policy. However, the topics identified will include fighting covid-19, American families, race in America, climate change, national security and leadership. Given frequent interruptions at the first debate, the moderator this time around will be able to mute microphones during candidates’ opening remarks on each topic.

Thus, enjoy the continued calm – the “storm” of action draws ever closer.

Siobhan Redford

Local rates

With US stimulus talks in no man’s land, US elections and MTBPS around the corner, bonds find themselves looking to global themes for direction. The front-end bonds opened up slightly offered – tracking moves in US treasuries – but ended up having quite a constructive day. The auction announcement had R186s, R2030s and R2048s on offer. With this being a relatively low-duration slate on offer, the back end of the curve started flattening, driven by local real and fast money cares extending duration.

The market will watch the non-comp take-up today. R2040s are in the money, while the R2032s are at the money. If only a portion of the non-comps is taken up, the bond curve could continue yesterday’s flattening and yields could track lower. Up ahead today we have US jobless claims out, but the local front is relatively quiet. News that a R10.5bn bailout for SAA has full cabinet support might weigh on SAGBs as investors grapple with where SA will find the necessary funding.