SA’s twin epidemics

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SA’s twin epidemics

Global Markets Daily: SA’s twin epidemics

Global: Risk-rally fatigue sets in

SA: Selected personal services and restaurants to be reopened

Rand: Stuck in a tight range

Local rates: R2030s put on strong auction performance

What to watch today

UK BOE Rate
US Initial Jobless Claims
US Leading Index

Covid-19 update

Source: WHO, NICD

Economics and markets

The government is alive to the possibility of a surge in transmission rates, yet the economic burden is one that can no longer be borne by a dispirited society.
Markets are consumed by the possible implications of next week’s revised budget on issuance.
The directionality of USD/ZAR, or lack thereof, has had little bearing on the bond market of late.
The bold policy narrative which spurred notions of a swift V-shaped recovery is fast losing momentum.
USD/ZAR opens at 17.20; EUR/ZAR at 19.34; GBP/ZAR at 21.59 and CNY/ZAR at 2.43.

“Even after 100 days, we are still near the beginning of this epidemic and it will remain with us for many more months, possibly years.” A sobering thought from a weary president. His was a solemn address, balancing startling statistics against socioeconomic suffering that has left more than half a million South Africans jobless over the last three months. The government is alive to the possibility of a surge in transmission rates, yet the economic burden is one that can no longer be borne by a dispirited society.

Epidemics are not merely spread through pathogens. Violence against women and children is an endemic that continues to plague our communities, evoking anger and fear. In acknowledging the victims and denouncing the senseless behaviour, the president shone a light on a devastating human rights abuse. Like covid-19, it will require a collective effort to repress. A powerful message to a captive audience.

The announcement was not as impactful on local markets as one would have anticipated. Markets are consumed by the possible implications of next week’s revised budget on issuance, anticipating a deeper revenue shortfall despite the progressive reopening of the economy. The National Treasury’s revised growth and tax buoyancy assumptions will be of interest, considering the three scenarios modelled by SARS earlier in May, which predicted GDP outcomes ranging between -5.4% and -16% for the current financial year. Still, investors remain spellbound by SABG yields as the nominal auction yesterday drew considerable bidding interest, particularly from offshore participants (refer to local rates section).

The directionality of USD/ZAR, or lack thereof, has had little bearing on the bond market of late. The local unit is anchored at 17.18, venturing no further than 17.13 on the downside and 17.26 on the way up. Aspen Pharmacare’s 9.3% surge in share value, ascribed to its supply of a dexamethasone which is proven to reduce mortality in critically ill covid-19 patients, offered little inspiration to a listless rand market.

The bold policy narrative which spurred notions of a swift V-shaped recovery is fast losing momentum as geopolitical angst and concerns of a second wave weigh heavily on global risk sentiment. The decline in US and European equity futures embodies the broader risk-off tone, as so-called risk-rally fatigue sets in. Asian markets have shown disparate performances. Despite the Indo-China fallout, the CSI 300 is teetering in the green, anticipating further PBOC support. US markets are as confused as we are about the implications of John Bolton’s tell-all book for the Trump administration, which has sought to block the publication. That the BOE will probably extend its bond-buying programme will have a marginal impact on broader trade with all the US hubbub about.

We look to better days.

Nema Ramkhelawan-Bhana

Local rates

With most of the market still recovering from the long weekend, the National Treasury came to market and issued R6.1bn in nominal stock yesterday. With the R2030s making up half of the total size, investors kept a keen eye on the take-up of the 10-yr bond. The 2030s cleared auction stronger than market at a yield of 9.29 with a bid-to-cover ratio 2.78. The R186s and R2032s cleared action at 7.79 (bid-to-cover 2.34) and 10.18 (bid-to-cover 1.78), respectively, with the National Treasury issuing 1.5bn of each. While the auction follow-through was relatively disappointing, foreigners remain better sellers across most of the EMEA markets. Local flows remain evasive across the nominal, inflation and derivatives markets. The currency is trading in a narrow range around the 17.20 level.