Ithasbeenatrulyshockingyearthusfar

GM Daily: It has been a truly shocking year thus far

 

Global: China wades into the TikTok issue

SA: Agriculture bucks trend

Rand: Ending the month stronger

Local rates: UK holiday to keep markets in check

 

What to watch this week

 

Monday

• JN Retail Sales (y/y)
• CH Manufacturing PMI
• SA Money Supply (M3)
• SA Private Sector Credit Extension (y/y)
• SA Trade Balance
• GE CPI (y/y)
• US Dallas Fed Manufacturing Activity

 

Tuesday

• JN Jibun Bank Japan Manufacturing PMI
• CH Caixin China Manufacturing PMI
• GE Markit/BME Manufacturing PMI
• EC Markit Eurozone Manufacturing PMI
• UK Markit Manufacturing PMI
• SA Manufacturing PMI
• EC Unemployment Rate
• US Markit Manufacturing PMI
• US ISM Manufacturing
• SA Naamsa Vehicle Sales

 

Wednesday

• JN Monetary Base (y/y)
• GE Retail Sales (y/y)
• EC PPI (y/y)
• US MBA Mortgage Applications

 

Thursday

• JN Jibun Bank Japan Services PMI
• CH Caixin China Services PMI
• SA South Africa PMI
• GE Markit Services PMI
• EC Markit Services PMI
• EC Retail Sales (y/y)
• SA Electricity Production
• US Nonfarm Productivity
• US Unit Labour Costs
• US Initial Jobless Claims
• US Trade Balance
• US Markit Services PMI

 

Friday

• GE Markit Construction PMI
• UK Markit/CIPS Construction PMI
• US Change in Nonfarm Payrolls
• SA SACCI Business Confidence

 

 

Covid-19 update

Source: WHO, NICD

 

Economics and markets

• China waded into the sale of TikTok in the US by increasing restrictions on the export of AI technologies, which will force ByteDance to get China’s permission to sell its US operations.
• The EU is looking to future proof its reliance on raw materials, having recently updated its list of critical raw materials.
• The national crop estimates committee has estimated that this year’s maize crop is 38% bigger than in 2019 and suggests that the winter crop will also show a marked improvement on last year.
• Market bias towards good news is reflected in risk-on appetite by traders and investors, as seen in the rand’s impressive move from opening above 17 to the dollar on Friday to opening today just below 16.60.
• A mixed Asian trading session this morning, and a bank holiday in the UK, will probably see the local bourse relatively directionless today.
• USD/ZAR opens at 16.59; EUR/ZAR at 19.75; GBP/ZAR at 22.15 and CNY/ZAR at 2.42.

 

As we set ourselves to bid an official farewell to winter, it seems that the weather will remind us that spring is a volatile period. August has been a quiet month for markets, but not for news flow. It seems a lifetime ago, but it was the beginning of this month that saw the massive explosion in Beirut, only adding to the economic woes facing Lebanon, and no doubt the recovery and rebuilding will take months or even years. And so the world came to terms with yet another shock in what can only be called a shocking year. The other news that took centre stage was the Democratic and Republican national conventions marking the ramping up of electoral campaigning in the US in advance of its November elections, even as the parties continue to disagree on a new fiscal stimulus package. In South Africa, the political focus was more on the revelations of rampant corruption related to the SA government’s covid-19 response, with the ANC NEC having met over this past weekend to discuss the issue. Politics did not remain local though, as Brexit negotiations continued rather than concluded, and geopolitical tensions persisted, with tit-for-tat often the nature of engagement. 

It should come as no surprise then that China waded into the sale of TikTok in the US by increasing restrictions on the export of AI technologies, which will force ByteDance, TikTok’s owner, to get China’s permission to sell its US operations. No doubt there will be further developments this week on the Sino-US relations in one way or another. 

This is a vital warning to SA’s farmers who are no doubt celebrating the year’s impressive summer crop, with the confirmation by the national crop estimates committee that the estimated maize crop is 38% bigger in 2020 than it was in 2019. Drought, though, is never too far away, and so the fortunes of farmers can change quite rapidly. Nonetheless, this is good news and, with the added expectation that the winter crop will show improvements on last year as well, bodes well for agricultural activity bucking the declining trend for economic activity across much of the rest of SA. 

It is on this note that, despite much of the bad news, it seems markets are biased towards the good news and thus continue to display risk-on appetite by traders and investors. This can be no clearer than in the rand’s impressive move from opening above 17 to the dollar on Friday to opening today just below 16.60. If this strength remains, the rand will have strengthened over 2.7% against the greenback during August, and will have recorded more modest gains against the euro and the pound. The domestic equity market has not fared quite as well though, having experienced significant volatility during August. The Alsi has only gained 0.6% thus far for the month. A mixed Asian trading session this morning and a bank holiday in the UK will probably see the local bourse relatively directionless for this, the final day of August. September should see a change in the pace of activity as liquidity returns to global markets as the northern summer holidays come to an end. 

Thus the southern spring will not only bring with it volatile weather, but also more volatile markets; hopefully this month the only shock will be the continued shock to the world from covid-19. 

Siobhan Redford

 

Local rates

The bond market largely ignored the strength in the currency on Friday. The curve flattened slightly, with the front end ticking 2bp higher while the back end remained stable. Flows in SAGBs remained muted, with most of the focus on the ILB front, with another stellar auction driving price action in the linkers. The bid-to-cover ratios on all three bonds were healthy and yields cleared 3bp-9bp through the previous day’s MTM levels. The I2025 received the bulk of the bidding interest as the positive carry over the next two months is most prevalent in the shorter-dated bonds, but the I2046s also remain well bid, with that point of the curve clearing 9bp tighter than MTM. 

Ahead today, we are in for a quiet session with the UK closed for a bank holiday. The market has to absorb yet another R6.6bn in bonds tomorrow, and this auction is relatively duration heavy. Given the lack of the normal market participants, bonds could be in for a poor day, as primary dealers make space for Tuesday’s auction. Up ahead today, we have money supply, private sector credit and trade balance figures released locally, but the market will also keenly await any headlines that come out of this weekend’s NEC. 

Michell Wohlberg