Slow and steady wins the race

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Slow and steady wins the race

RMB Markets Daily: Slow and steady wins the race

Global: 270 is the magic number but still eludes both Biden and Trump

SA: Better foreign buying of local bonds

Rand: All hail the super rand

Local rates: Rand rallies to best levels in six months

What to watch today

SA Gross Reserves
SA Net Reserves
GE Industrial Production SA (m/m)
US Change in Nonfarm Payrolls
US Unemployment Rate
US Consumer Credit

Covid-19 update

Source: WHO, NICD

Economics and markets

The blues draw nearer to a presidential win as counting continues.
Mail-in ballots have favoured the Democratic nominee, allowing him to pull closer to the incumbent.
The importance of this election is underscored by the voter turnout, which early predictions put at 67%.
Chinese assets are being priced for a more conservative approach to US-Sino relations in the event of a Biden win.
There is a strong air of fatigue permeating through global stocks and bonds.
A Democratic flip of the Senate could refresh stimulus hopes and enthuse exhausted investors.
The Fed holds the better hand, subtly reminding the market of its ability to enlarge QE purchases.
The rand continues to outperform.
USD/ZAR opens at 15.68; EUR/ZAR at 18.55; GBP/ZAR at 20.62 and CNY/ZAR at 2.38.

Slow and steady wins the race. Anyone with a social media account, access to a newspaper, radio or the inside of a bubble-gum wrapper would know by now that Joe Biden is just shy of six votes to win the presidential seat (that number could well change by the time you read this commentary). Mail-in ballots have favoured the Democratic nominee, allowing him to pull closer to the incumbent in the key states of Georgia and Pennsylvania. Tallying continues, despite the president’s capitalised plea to STOP THE COUNT. The legitimacy of the mail-in vote, which could prove to be Trump’s downfall, is the basis upon which many of his legal challenges have been mounted. Old Abe Lincoln was right, “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”

It’s been an emotionally taxing week, not least for Americans awaiting the outcome of their democratic vote. The importance of this election is underscored by the voter turnout, which early predictions put at 67% – the highest in more than a century. Now consider that nearly 10 million Americans have been virus stricken. That’s almost 10% of the estimated constituents and roughly 18 seats in the House of Representatives! The point being that the numbers are meaningful. At 96%, the recovery rate is as significant, but daily case rates are steadily rising.

The presidential outcome will determine whether there is a change in tack in managing the outbreak, with a Biden administration planning to nationalise mask wearing, testing, PPE procurement and vaccine distribution. This is all conjecture based on the popular vote and market reactions. It’s by no means an endorsement of the Democratic nominee. @realDonaldTrump is a muse upon which many of my writings are based.

That quip might be less amusing today than yesterday when markets were more alive to the possibility of change. Today, there is a strong air of fatigue permeating through global stocks and bonds. Perhaps a Democratic flip of the Senate could refresh stimulus hopes and enthuse exhausted investors. At this point, the Fed holds the better hand, subtly reminding the market of its ability to enlarge its daily balance sheet purchases, possibly lengthening the maturity of its purchases to hold down long-term bond yields.

The Bank might well have to shoulder the burden of stimulus if the House is split. It’s held off on any immediate action, keeping its broader narrative on the economy relatively unchanged but warned of deteriorating circumstances. Today’s US jobs report, which would ordinarily move the market, could show a modest improvement in labour conditions, though the workforce participation rate remains well below pre-crisis levels.

Inspiration is lacking as the global rally peters out, perhaps signalling a squaring of risk positions at the close of the week. Stock futures are mixed, with US and European counters retreating while Asian securities continue to advance. Chinese assets are being priced for a more conservative approach to US-Sino relations in the event of a Biden win. A dicey play. While the former VP advocates a more multilateral approach, lightening trade restrictions might not be entirely in America’s best interests. The relationship will remain tenuous regardless of the presidential outcome, limiting downside on USD/CNY.

The rand isn’t under the same constraints, strengthening far more than technicals would suggest. The local unit is the best performing EM currency on a six-month basis despite it still being weaker 11% year-to-date. That tells of the extent of the depreciation in March and April, made worse by the Moody’s downgrade and covid-induced economic distress. The strengthening momentum seems intact as the currency tests lower lows against the greenback, with little to derail it, at least today. Local affairs have been rather quiet this week, though Minister Gordhan’s categorical statement that government would not provide any further funding to SAA over and above what has been committed to its business rescue plan is encouraging. After yesterday’s phenomenal nominal rand bond purchases, today’s ILB auction could attract considerable support, with T-bills offering additional value for those seeking short-term government exposure.

Alike to the counting of US ballots, we urge you to take it slow and steady as we bring to a close another dramatic week.

Nema Ramkhelawan-Bhana

Local rates

The local currency is still rallying on the back of the US elections, where presidential candidate Joe Biden has a slight edge over the incumbent and possibly outgoing president Trump, while the rest of the emerging market currencies also had decent gains against the greenback. The rand rally feels somewhat overdone as it trades around 15.70 this morning, its best level in six months. Global volatility has subsided, with the VIX Index coming off since Wednesday. Global equities are still struggling to find any meaningful direction and emerging market bonds are seeing significant inflows.

Offshore accounts were net buyers of close to R7bn in SAGBs yesterday, and the rates market definitely felt a bit heavy yesterday with futures closeout. This was certainly a strong week for local bonds, with a 100% greenshoe take-up as they cleared in excess of 20bp in the money. On the day, we saw decent two-way interest across the SAGB curve from local real and fast money accounts. There were some 5y5y receiving cares in the market, however, the front end of the swap curve had payers a plenty. Local real money were buyers of near-dated R2030 and R2037 put options on the day, and we also saw some short fences come through the broker market around midday. Today, we have an ILB auction with the National Treasury coming to market with I2029s, I2038s and I2046s. Good luck.