Sherbet!

GM Daily: Sherbet!

Global: Markets surge east of the Atlantic

SA: Positive global sentiment and vaccine news flow keep local stocks cheerful

Rand: Leading the pack – USD/ZAR16.90 in sight

Local rates: Some signs of strength but greenshoe looms

What to watch today

CH PPI (y/y)
CH CPI (y/y)
GE Trade Balance
GE Current Account Balance
SA Manufacturing Prod
US Initial Jobless Claims
US Continuing Claims

Covid-19 update

Source: WHO, NICD

Economics and markets

Trump administration advocates for the continued removal of lockdown measures, while Fed officials argue that flare-ups raise questions about the outlook for reopening.
Bloomberg’s measure of the US dollar’s performance reflects persistent downward pressure on the spot price.
EM currencies are the natural benefactors of US dollar weakness, though it is apparent from yesterday’s showing that investors are starting to discriminate between currency pairs.
The world east of the Atlantic will set the pace for local markets as Euro Stoxx futures mimic the cheerfulness of Chinese equities.
The risk is that the optimism enveloping markets fades if high-frequency data begins to stall and fiscal support is left wanting.
USD/ZAR opens at 16.93; EUR/ZAR at 19.19; GBP/ZAR at 21.35 and CNY/ZAR at 2.45.

Commentating on global markets is much like tasting sherbet. A sweet effervescence tingles your taste buds before causing you to sputter as it permeates your nasal passages. The moral of the story: look through the noise and possibly eat less sherbet.

Global markets are remarkably bullish this morning. The rand outpaced a myriad of currencies, appreciating by the largest margin against the US dollar on the day. Its EM compatriots were well off the pace, with the Mexican peso surrendering 0.32% of its value to the greenback as the country reports daily increases in covid-19 transmissions. Bloomberg’s measure of the US dollar’s performance reflects persistent downward pressure on the spot price over the last two weeks.

While the Trump administration advocates for the continued removal of lockdown measures despite recording its largest one-day increase in cases since the onset of the epidemic, Fed officials argue that flare-ups raise questions about the outlook for reopening. A poor read of the US jobless claims numbers this afternoon will probably entrench a weakening trend in the spot index.

EM currencies are the natural benefactors of US dollar weakness, though it is apparent from yesterday’s showing that investors are starting to discriminate between currency pairs based on the risk that covid-19 poses to their real economies. We need only look at the Brazilian real, which has weakened by more than 9% this month amid an explosion in active cases and a country-wide federal investigation into the misuse of covid-19 relief monies. South Africa is not without its challenges, but has imposed far stricter measures than its Latin American peer. Having slipped below USD/ZAR17.00, the rand market is poised for a break of 16.90, though a move lower would be underpinned by pure sentiment rather than fundamental support.

The world east of the Atlantic will set the pace for local markets as Euro Stoxx futures mimic the cheerfulness of Chinese equities. The CSI 300 Index is up 16% this month, maintaining a positive trajectory overnight despite a crackdown on margin financing platforms. Risk sentiment is further enthused by central bankers offering additional assistance if data softens. This, at least, was the message expressed by the BoJ’s Kuroda and the Fed’s Bostic.

The risk is that the optimism enveloping markets fades if high-frequency data begins to stall and fiscal support is left wanting. The EU’s stimulus plan is yet to be ratified and next week’s group engagement will prove challenging as terms are unlikely to be agreed upon. A wall of bankruptcies across the UK and Europe is a further test of policymakers’ will, with the BOE and EC contemplating direct involvement in small and medium-sized enterprises. Beware that sherbety aftertaste.

Nema Ramkhelawan-Bhana

Local rates

With the US dollar continuing to weaken somewhat yesterday, the rand made some gains back towards the R17/US$ level and this inspired bonds to rally a few points, but, as may be the case going forward, struggled to really break through the greenshoe option levels following Tuesday’s weekly auction. The National Treasury decided to replicate last week’s bonds on auction, with the R186/2030/2048 on offer again next week. This, together with the greenshoe expiring at 11am today, caused both the R186 and R2030 to stall just below the auction-clearing levels of 7.90% and 9.70%, respectively, as well as the curve to steepen as the market had not been expecting another wave of R2048s again so soon.

This morning, the risk-on/weaker US dollar themes continue with a strong move in Asian equities and the US dollar moving closer to 1.14/EUR, pushing the rand through the R17/US$ level and currently just above the important 16.90 technical level, which has proved very stubborn recently. Bonds will struggle to rally dramatically until the greenshoe is out of the way, but after the 11am expiry should see some gains as well.

Local Manufacturing production numbers for April will be out at 1pm. Not surprisingly, horrendous declines of around 30-40% are expected for both MoM and YoY releases. In the US, watch for initial jobless claim data out at 2:30pm, with another 1.4 million Americans expected to have filed for unemployment benefits for the first time last week.