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Normalisation delayed

GM Daily: Normalisation delayed

Global: UK’s new restrictions could be in place for six months

SA: Leading indicator surprises, printing higher than expected

Rand: Opening slightly weaker, but with heightened volatility

Local rates: Foreigners seem to have lost their love for SA

What to watch today

JN Jibun Bank Japan PMI Mfg
JN All Industry Activity Index
GE GfK Consumer Confidence
GE Markit/BME Germany Manufacturing PMI
EC Markit Eurozone Manufacturing PMI
UK Markit UK PMI Manufacturing SA
US MBA Mortgage Applications
US FHFA House Price Index
US Markit US Manufacturing PMI

Covid-19 update

Source: WHO, NICD

Economics and markets

Britons are to prepare for six months of increased restrictions, which could be stepped up if the restrictions announced yesterday do not help to slow the rate of new covid-19 infections.
Chancellor of the Exchequer, Rishi Sunak, is now expected to propose further wage support and stimulus measures to help the UK’s economy weather this crisis as best it can.
US funding concerns seem to be greater than just the need for a new stimulus package as the House has passed a stopgap funding bill to ensure that government services remain available through to December.
The ASX has followed the US bourse’s growth, with a 2.4% increase in today’s trading session, miles ahead of other Asian markets which are trading flat.
The dollar continues its strengthening trend, which has pushed the rand slightly weaker relative to yesterday, but rand volatility remains high.
USD/ZAR opens at 16.80; EUR/ZAR at 19.67; GBP/ZAR at 21.38 and CNY/ZAR at 2.48.

Britons were all but told to expect that Christmas this year will not be normal – actually, they are to prepare for six months of increased restrictions. These could be stepped up if the restrictions announced yesterday do not help to slow the rate of new covid-19 infections in the UK. This has turned attention to the Chancellor of the Exchequer, Rishi Sunak, who is now expected to propose further wage support and stimulus measures to help the UK’s economy weather this crisis as best it can. Not far from his, or for that matter many people’s minds, will be the ever-looming deadline for some kind of agreement on trade relations between the UK and EU. In the absence of an agreement, the UK economy will probably face a rather challenging 2021, even if covid-19 manages to become an afterthought.

In the US, the new infection rate remains relatively controlled. However, funding concerns seem to be greater than just the need for a new stimulus package as the House has passed a stopgap funding bill to ensure that government services remain available through to December, with the Senate to vote on this bill before the end of the month. The bill has seen some assistance extended to farmers and low-income families, but should Jerome Powell’s assessment about the economic outlook be right, there will need to be broader economic aid. A process that has been at full steam has been President Donald Trump’s nomination for Ruth Bader Ginsburg’s replacement in the Supreme Court, with a confirmation hearing and vote expected by mid-October.

The US market correction has turned, with the Dow, S&P 500 and Nasdaq growing by 0.5%, 1.1% and 1.7%, respectively yesterday. The ASX has followed, with a 2.4% increase in today’s trading session, miles ahead of other Asian markets which are trading flat. The dollar continues its strengthening trend, which has pushed the rand slightly weaker relative to yesterday, but rand volatility remains high. SA is not alone though, with many EMs experiencing similar movements.

Domestically, it is the last busy business day for the week as many people will probably take Friday off and make it a long weekend starting with tomorrow’s observance of Heritage Day. That said, data releases remain thin with the July reading of the composite leading indicator out yesterday showing an unexpected jump (as well as a significant upward revision to June’s outcome). This does not indicate that SA is out of the woods, but rather confirms that economic activity is improving from the deep contraction in the second quarter, in line with the easing of lockdown restrictions.

On that note, may your preparations and celebrations of South Africa’s rich heritage go smoothly (with appropriate physical distancing) and for those of you looking forward to a long weekend, enjoy the break.

Siobhan Redford

Local rates

After a brutal day on Monday, SAGBs felt no love from foreign investors, with foreigners seen selling bonds first thing on Tuesday morning. Bonds weakened another 15bp on the open as investors feared that the high delta auction would not garner enough interest. This is one of the highest delta auctions we’ve had in two years and it was no surprise that the market was a little weary ahead of the auction. The auction was well supported with yields clearing at market mids, but the bid to cover ratios were less than inspiring. Bonds managed to gain some traction post the auction as local investors came in and took advantage of the recent weakness in yields, signalling that perhaps the market has done a little too much too soon.

Bond yields have opened up slightly stronger than yesterday’s close, but with the lack of any significant data to drive markets, focus will turn to the auction announcement at 11:00am to drive price action. The non-comp options will shift to Friday as tomorrow is a public holiday, so auction participants have 72 hours of optionality which should put a dampener on any significant bond rally.