Social limitations spread with covid-19

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Social limitations spread with covid-19

GM Daily: Social limitations spread with covid-19

Global: US presidential debate the main focus of the day

SA: How bad was unemployment in 2Q20?

Rand: Heightened volatility expected to remain

Local rates: Auction to garner interest ahead of CPI

What to watch today

JN Tokyo CPI (y/y)
SA SARB Quarterly Bulletin
UK Net Consumer Credit
UK M4 Money Supply (y/y)
SA South Africa Unemployment
GE CPI (y/y)

Covid-19 update

Source: WHO, NICD

Economics and markets

The Netherlands has reimposed a curfew on bars and restaurants and barred the attendance of professional sports matches as covid-19 infection rates rise.
In the UK, an estimated 700,000 people have lost their jobs this year, which has Boris Johnson promising funding for reskilling of those impacted.
Discussions on a new stimulus bill for the US are continuing and could be making some headway.
The first US presidential election debate will be held tonight and will cover six topics.
Today though, Asian markets find themselves in a bit of a holding pattern, as the Nikkei is recording marginal growth above 0.1%, but the Hang-Seng is approaching a decline of 0.6%. The ASX is flat on the day’s trading.
Today, the JSE will probably see subdued trade with a risk that, should the unemployment figure, out later this morning, surprise by being even worse than the Bloomberg consensus of 34.9% in the second quarter of 2020, it could push the local bourse into red territory.
While the rand opens flat relative to yesterday, it see-sawed between 17 and 17.20 to the dollar yesterday and could continue to see heightened volatility without direction today.
USD/ZAR opens at 17.03; EUR/ZAR at 19.89; GBP/ZAR at 21.89 and CNY/ZAR at 2.50.

Following the UK’s reimposition of a curfew on bars and restaurants, the Netherlands has followed suit, additionally barring the attendance of professional sports matches. This, as the rate of covid-19 infections is rising across the channel as well. As we approach the end of the ninth month of the year, covid-19 remains a clear and present danger – in the absence of a cure or vaccine, many countries could see recurring waves of increased infection rates. SA is unlikely to miss out, as greater freedom of movement and socialisation has been allowed. These measures abroad, however, show that strict lockdowns have had a substantial negative impact on economic activity and thus the new measures are more targeted in an attempt to avoid having to return to a strict lockdown. In the UK, 700,000 people are estimated to have lost their jobs, which has Boris Johnson promising funding for reskilling of those impacted, perhaps also looking forward to the UK’s new status quo in 2021 – officially out of the EU.

It appears that there is still some hope on the negotiating table that a Brexit deal could be reached, and it seems clear that the uncertainty surrounding a deal will become less so by the middle of October. Further, on the other side of the Atlantic, discussions on a new stimulus bill for the US are continuing and could be making some headway. The passing of a new fiscal stimulus bill would probably be welcomed by US and global markets during what is gearing up to be a rather uncertain fourth quarter. This as the US presidential race continues to intensify over the next month, beginning with the first of the presidential debates tonight. The topics for debate include the performance records of President Trump and Joe Biden (a former vice-president), the supreme court – in the wake of the passing of Ruth Bader Ginsburg and Trump’s fast-tracked nomination of her replacement – covid-19 (this is 2020 after all), the economy, race and violence in US cities and the integrity of the election. The latter, no doubt as a result of Trump’s concerns over postal ballots and hints that he may not accept the election outcome (in the event that he loses). It should be a rather enlightening exchange and no doubt will have an impact on how markets perform tomorrow.

Today, though, Asian markets find themselves in a bit of a holding pattern, as the Nikkei is recording marginal growth above 0.1%, but the Hang-Seng is approaching a decline of 0.6%. The ASX is flat on the day’s trading. Global data releases will be relatively thin, which means that it is the evening event in the Western Hemisphere that could spark renewed rallies. The JSE had a pretty good session on Monday with the ALSI closing over 2% higher. Today should be more subdued and with a risk that, should the unemployment figure, out later this morning, surprise by being even worse than the Bloomberg consensus of 34.9% in the second quarter of 2020, it could push the local bourse into red territory. The rand opens today very much around yesterday’s open against the US dollar, suggesting it has moved sideways. However, while the opens are very similar, the rand see-sawed between 17 and 17.20 to the dollar yesterday and could continue to see heightened volatility without direction.

Thus enjoy a moment of quiet for that first (or maybe second) cup of tea or coffee as local data could provide some excitement today, and in the absence of that, the US presidential election will provide excitement in markets tomorrow.

Siobhan Redford

Local rates

Yesterday’s bond flows are what we’ve become accustom to on a typical Monday, with turnover only amounting to R19bn on the day, and any rally we see being halted as primary dealers make space for Tuesday’s auction stock. With the National Treasury offering a shorter slate of bonds this week, the bond curve has come under some flattening pressure with the back end still seeing a lot of structural demand.

Today’s auction should be relatively well supported as the non-comp options cover tomorrow’s CPI print. The National Treasury will issue R186s, R2030s and R2037s. Given the lack of duration on offer this week, the R2037s and the R186s should receive the lion’s share of bidding interest, while the belly of the yield curve remains better offered. A strong auction coupled with a currency around the 17.00 handle should result in bonds rallying somewhat after last week’s sell-off. In the medium term, the market is still looking forward to the MTBPS and flows are expected to remain muted until we have some more certainty on SA’s fiscal path.