Resurgence

GM Daily: Resurgence

Global: UK expected to see increased lockdown measures as infections surge

SA: Comair rescue approved

Rand: Sharply weaker on dollar strength

Local rates: Offshore selling after rand tumbles

What to watch today

UK Central Government NCR
UK Public Sector Net Borrowing
SA Leading Indicator
EC Consumer Confidence
US Existing Home Sales

Covid-19 update

Source: WHO, NICD

Economics and markets

There has been a substantial resurgence in the covid-19 infection rate in the UK, which has Boris Johnson looking to tighten and reinstitute some restrictions that have only recently been lifted.
Jerome Powell is expected to express concerns about the heightened uncertainty facing the economy in testimony to congress today.
A turn to risk-off sentiment has hit markets this week, pushing the dollar sharply stronger and the rand and other EM currencies weaker.
Equity markets seem to be correcting for recent exuberance, with the Dow down 1.8% and the S&P 500 down 1.2% during the US trading session yesterday.
Alongside the lower gold price (although this may be temporary given the risk-off environment), SA’s bourse is set up for another dismal trading day.
The business rescue plan for Comair seems to have been approved and could see Kulula and BA back in the domestic air by December.
USD/ZAR opens at 16.78; EUR/ZAR at 19.76; GBP/ZAR at 21.51 and CNY/ZAR at 2.47.

As many know all too well, SA moved to level 1 of lockdown yesterday, but a day later, it is important we take note of what is happening in the UK and learn. There has been a substantial resurgence in the covid-19 infection rate in the UK, which has Boris Johnson looking to tighten and reinstitute some restrictions that have only recently been lifted. In particular, tightened rules are expected for the operations of pubs and restaurants, lower limits for public gatherings as well as the renewed call to work from home, although there are obvious concerns about what this means for the UK’s economy. Thus, as our personal freedoms are returned, we must exercise them prudently if we are to avoid following in the footsteps of the UK.

In the US, Jerome Powell is expected to express concerns about the heightened uncertainty facing the economy in testimony to congress today. Data out of the US has generally been better than expected, however, Powell’s concerns will probably reflect the continued risks stemming from future waves of covid-19, heightened market volatility in the run-up to the US elections and continuing trade and geopolitical tensions. He will also call for further fiscal support and speak to the poor uptake in the Fed’s Main Street lending programme. Interestingly, this will be against the backdrop of a turn to risk-off sentiment which has hit markets this week, pushing the dollar sharply stronger and the rand and other EM currencies weaker. Equity markets seem to be correcting for recent exuberance, with the Dow down 1.8% and the S&P 500 down 1.2% during the US trading session yesterday. S&P futures are down marginally this morning, suggesting that the bias in US markets will be downwards, if markets don’t stay flat today. The Asian session is following the US trend downwards, with the Hang Seng down around 0.7% and the ASX and Shanghai Composite index not far behind. Alongside the lower gold price (although this may be temporary given the risk-off environment), SA’s bourse is set up for another dismal trading day.

This could reflect how SA’s poor president feels, as he is on bed rest for a common cold, although I’m guessing heightened stress levels have contributed to the need for him to take some time out for recovery. Rest well, CR, for there are no doubt more challenges ahead of you. Some good news though it that the business rescue plan for Comair seems to have been approved and could see Kulula and BA back in the domestic air by December.

2020 has been a year of stops and starts, progress and regress, which is par for the course – it is just that the scale this year has been so much bigger. To avoid a UK-style regress, let us do our part to keep the economy going by continuing good hygiene and social distancing practises.

Siobhan Redford

Local rates

With the global environment turning more risk averse again following further tightening of covid-19 legislation across Europe and the UK, equity markets and EM currencies were hit hard yesterday with the rand sadly leading the way, down almost 3% on the day. This saw both the ILB and the nominal bond curves under pressure yesterday, with the medium to longer end of both curves weaker by about 15 points. Offshore investors were sellers of around R2.5bn yesterday, which seems quite disastrous given we are going into a high-duration auction this morning, but the “good” news is that most of the selling (R1.6bn) was focused on the shorter end of the curve (R208/2023/186) which hopefully points to some capacity for both offshore and local investors to take up bonds in the auction this morning. Local investors were already picking up some ultra-long bonds yesterday with demand in both the R2044 and R2048 seen on our side.

On offer today will be R2.2bn of each of the R2035/2040/2048, so hopefully the fact that the ultra-long bonds are close to 11.50% will see some bidding interest this morning. The fact that the green-shoe options run until Friday, due to Thursday’s holiday, may also inspire further demand today.