Potus and payrolls

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Potus and payrolls

GM Daily: Potus and payrolls

Global: Potus’ covid-19 diagnosis spooks investors

SA: Leasing of 700,000ha of farmland boosts land redistribution efforts

Rand: Under pressure as risk-off sentiment seeps through global markets

Local markets: Offshore selling continues

What to watch today

JN Monetary Base (y/y)
EC CPI Core (y/y)
US Change in Nonfarm Payrolls
US Unemployment Rate
US University of Michigan Sentiment

Covid-19 update

Source: WHO, NICD

Economics and markets

The storyboards are lit with speculation surrounding the US presidential couple’s covid-19 diagnosis.
The critique of the government’s handling of the covid-19 pandemic will probably intensify.
Paired with the ambiguity about September’s US non-farm payrolls, Potus’ covid-19 status could push markets to the brink.
Treasuries, the US dollar and gold are natural beneficiaries of market angst, made worse by the continued haggling over a US fiscal stimulus package.
EMs are struggling amid all the global fanfare. Risk-off is the order of the day.
USD/ZAR opens at 16.60; EUR/ZAR at 19.51; GBP/ZAR at 21.39 and CNY/ZAR at 2.46.

Potus and non-farm payrolls. Need I say much more? The storyboards are lit with speculation surrounding the US presidential couple’s covid-19 diagnosis after a close aide tested positive. There’s a cruel irony in the recent revelation – one that doesn’t need much explanation. The critique of the government’s handling of the covid-19 pandemic will probably intensify. But let’s not forget the human aspect of the story. Trump’s UK counterpart, Boris Johnson, struggled for several days post quarantine. Trump’s age increases his level of vulnerability, heightening market concerns ahead of the highly contested presidential elections.

Paired with the ambiguity about September’s US non-farm payrolls, which are expected to show a worsening in labour market conditions, Potus’ covid-19 status could push markets to the brink. The 1.4% slump in S&P futures reflects the absolute dismay, mimicked in Asia and carried through into European markets. Granted, Golden Week limited the fallout in Asia, but Tokyo’s stock market carried much of the burden after yesterday’s technical glitch. Treasuries, the US dollar and gold are natural beneficiaries of market angst, made worse by the continued haggling over a US fiscal stimulus package. Rhetoric will do little to calm investors sceptical of political intentions.

Outside of the gold rally that has been underpinned by risk aversion and negative real rates, the broader commodity spectrum is coming under pressure. The Bloomberg Commodity Index tracked lower on Thursday, putting it on track for a weekly decline amid broad losses in energy, metals and agriculture. The short-term outlook for oil futures seems bleak, despite sustained OPEC+ production cuts. Contributing to the bearish outlook are concerns that global demand is rising too slowly to absorb the covid-induced supply glut. Eight months on and covid-19 continues to muddy the economic outlook as cases resurface across primary hotspots. Daily case rates have flattened but are still elevated above 250,000 worldwide, vexing even the most optimistic of investors.

EMs are struggling amid all the global fanfare. Risk-off is the order of the day, pressurising the rand’s break of its 200-day moving average. The Mexican peso and rand are taking the brunt of the weakness, up over 0.7% against the greenback respectively. USD/ZAR16.85 continues to present strong resistance. Non-farm payrolls might even the playing field if markets perceive a weaker-than-expected figure as a catalyst for further policy support. Timing, though, is everything. The publication will be released early this afternoon. The domino effect, however, will probably carry into next week.

There isn’t much love for SA assets despite positive news flow over the leasing of 700,00ha of farmland and high-profile arrests. Sentiment towards local bonds remains neutral as fiscal woes continue to stifle demand, regardless of the exceptionally attractive yields. Supply is still being absorbed but secondary demand remains limited, resulting in intermittent, albeit slight, steepening of the curve (refer to the local rates section).

There’s not much more to be said other than to stay safe and vigilant this weekend.

Nema Ramkhelawan-Bhana

Local rates

Offshore selling continued yesterday as we head into the weekend, with a large duration auction on Tuesday. The National Treasury were brave enough to include two ultra-long bonds, the R2040 and R2048, which has put the curve under some pressure. Offshore investors continue to be net sellers, with another reduction of around R1bn yesterday, mostly in the R2048. According to data from Strate, offshore investors sold around R5.5bn overall in September, taking their total holdings down to 29.2% from 29.9% in August, which is the lowest percentage since March 2012. This will keep the yield curve under pressure as local investors struggle to take up the slack of increased government issuance and reduced offshore appetite.

Talking of issuance, we have another R2bn in ILBs this morning at 11am with the National Treasury offering the I2025/2029/2046 strip of linkers today. The ILB curve has also been under some pressure this week with yields drifting higher almost daily. The heightened yields may help garner support in the auction today and we expect reasonable clearing levels around the MTM levels of last night. After the auction, we expect a quiet trading day as we await the all-important US payroll numbers at 2.30pm this afternoon.