Short and sweet

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News
Short and sweet

GM Daily: Short and sweet

Global: Equities sell-off continues unabated, though not an impairment to risk

SA: Shortened trading week guided by news rather than data

Rand: Outpacing EM peers

Local rates: Underwhelming ILB auction

What to watch this week

Monday

CH 1-Year Loan Prime Rate
US Chicago Fed Nat Activity Index
US Household Change in Net Worth

Tuesday

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

Wednesday

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

Thursday

GE IFO Business Climate
US Initial Jobless Claims
US Continuing Claims
US New Home Sales
US Kansas City Fed Manf. Activity

Friday

JN PPI Services (y/y)
EC M3 Money Supply (y/y)
US Durable Goods Orders
CH BoP Current Account Balance

Covid-19 update

Source: WHO, NICD

Economics and markets

Level 1 of the government’s risk-adjusted strategy, effective today, will allow for more merriment than has been permissible over the last six months.
Local case rates have subsided but not disappeared, making social distancing all the more important.
With all the hype around vaccine experimentation, SA’s joining of an MMR trial, as a means of protection for front-line health workers, is encouraging.
With the SARB’s September sitting behind us, attention turns to the National Treasury and its messaging in the MTBPS.
USD/ZAR’s push lower is unrivalled, as the local unit continues to outpace its EM peers.
USD/ZAR opens at 16.28; EUR/ZAR at 19.29; GBP/ZAR at 21.09 and CNY/ZAR at 2.40.

Brevity never fatigues; therefore, brevity is always a welcome guest. An apt thought by French poet Gautier as we begin a shortened trading week in South Africa. Heritage Day, a salute to our cultural diversity, will be celebrated on Thursday. Level 1 of the government’s risk-adjusted strategy, effective today, will allow for more merriment than has been permissible over the last six months. The uniquely South African art of braaiing (also known as barbequing) will permeate the air with spicy notes most can enjoy now that larger social gatherings are allowed. We’re not out of the woods yet. Local case rates have subsided but not disappeared, making social distancing all the more important.

With all the hype around vaccine experimentation, SA’s joining of an MMR (measles, mumps and rubella) trial, as a means of protection for front-line health workers, is encouraging. Despite nine of the 170 tests in development worldwide being in late-stage phase 3 efficacy trials, none have been approved. Prevention is therefore better than cure. With only the SARB’s composite leading indicator on the calendar this week, news flow will mould sentiment. Any further developments from the DPE with respect to SAA will be instructive after Friday’s statement on the finalisation of funding, which emphasised that the national carrier will not be liquidated. An announcement on the restructuring and business rescue plan will be announced in the Adjustments Appropriation Bill, which is expected to be tabled in parliament shortly.

With the SARB’s September sitting behind us, attention turns to the National Treasury and its messaging in the MTBPS. As we mentioned post the SARB’s meeting last Thursday, our sense is that the Bank is now looking to NT and the rest of government to enact the necessary structural and fiscal reforms. Their approach will be measured as they review the impact of past decisions on economic activity and data. Local markets are therefore at the mercy of investor perceptions of SA’s propensity for fiscal prudence. This will find expression in the nominal bond curve, which could come under pressure amid fewer days of trade and lower turnover this week.

USD/ZAR’s push lower is unrivalled, as the local unit continues to outpace its EM peers, floating comfortably around 16.20. Trading impressions have been skewed this morning due to the closure of Japan’s market for a public holiday, exaggerating pre-dawn moves. There is certainly more data globally for the market to dig its teeth into this week, but similar and somewhat fatigued themes continue to sour appetite.

A Bloomberg blurb sums it up best: policymakers are back in the spotlight, with stimulus efforts looking precarious as virus cases climb in Europe, US fiscal talks are absent and geopolitical angst builds. The rotation away from tech stocks in the US is ongoing despite the approval of Oracle’s bid for TikTok’s American operations, but the equities uncertainty has not impaired risk assets. Outside of J. Powell’s umpteenth testimony this year, US-Chinese communications, the ECB’s review of its PEPP programme and the possible reimposition of restrictions in Britain will set the pace but might not make for pretty reading.

Nema Ramkhelawan-Bhana

Local rates

The post-MPC inflation auction was fairly underwhelming as bid-to-cover ratios struggled to surpass the 1.00 mark. The I2025s cleared auction at 2.80 (market 2.77) with a bid-to-cover ratio of 1.00, the I2038s cleared auction at 4.69 (market 4.65) with a bid-to-cover ratio of 1.00 while the I2050s cleared auction at 4.70 (market 4.67) with a bid-to-cover ratio of 1.00. The National Treasury issued R1,915bn in linker stock (200m, 800m and 915m, respectively) compared to the weekly R2bn issue.

The market remained relatively quiet for the rest of the day while some investors are coming to terms with the unexpected hold decision from the Monetary Policy Committee on Thursday. On the nominal front, we saw local fast money buying the back end with a particular preference for R2040s and R2044s, while local fast money were payers of the front end of the swap curve. The local currency is trading around the 16.30 level at the start of a short trading week. We anticipate a relatively timid day with limited data on the events calendar. Good luck for the rest of the week.