The value of 280 characters or less

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The value of 280 characters or less

GM Daily: The value of 280 characters or less

Global: Piecemeal US stimulus approach steadies markets

SA: SARB reiterates lower-for-longer stance

Rand: Revelling in renewed risk appetite

Local rates: Event risk to keep market activity muted

What to watch today

UK RICS House Price Balance
JN Trade Balance BoP Basis
JN Eco Watchers Survey Current SA
JN Eco Watchers Survey Outlook SA
GE Trade Balance
US Initial Jobless Claims
US Continuing Claims

Covid-19 update

Source: WHO, NICD

Economics and markets

US stimulus proposals are being bandied about on social media.
Nancy Pelosi is showing a willingness to adopt measures that will buttress ailing industries.
The piecemeal approach, as it’s now being called, has steadied global risk indicators.
On the whole, a softer US dollar and 5bp climb in the US 10-yr Treasury yield imply less risk aversion.
A reasonable assumption based on recent Fed rhetoric.
USD/ZAR opens at 16.62; EUR/ZAR at 19.55; GBP/ZAR at 21.48 and CNY/ZAR at 2.44.

Cast aside technicals and fundamentals, volatility is being priced off the value of tweets. I’m being dramatic of course, but crucial US stimulus proposals are being bandied about on social media like trivia on the inside of a bubble gum wrapper. Democrats aren’t bending to the president’s will, dismissing his request for helicopter money. Instead, the speaker of the house, Nancy Pelosi, is showing a willingness to adopt measures that will buttress ailing industries, expressing openness to an airline relief bill.

The piecemeal approach, as it’s now being called, has steadied global risk indicators which were unmoored by the sudden end to long-drawn-out US stimulus talks. While far more cordial than the presidential match-up (possibly due to the plexiglass barrier), the vice-presidential debate between Harris and Pence didn’t provided any additional steer to markets. The candidates were being adjudicated less on their ability to toe their respective party lines and more on their ability to assume the role of commander in chief if their septuagenarian leaders could no longer do so.

On the whole, a softer US dollar and 5bp climb in the US 10-yr Treasury yield imply less risk aversion. As would an appreciating rand, which is already 0.4% stronger than its opening level against the greenback. Equities have rallied equally as hard, while EM sovereign credit spreads are narrowing. A stronger gold price would have us believe the risk rhetoric is misplaced, but remember that its prospects remain bright for as long as real rates in the US are kept low.

This is a reasonable assumption based on recent Fed rhetoric. Despite it not being an "unconditional commitment”, projections for rates to stay near zero until 2023 were "most likely to be consistent" with the Fed’s goals. That according to the minutes of the bank’s September meeting, which also stressed members’ concerns over a lack of fiscal support and an eagerness to relook at aspects of QE. Curious, though not interesting enough to provoke the type of aggressive moves that were evident during the height of the 2020 blowout when markets responded to even the quietest of central bank whispers.

The SARB has been particularly vocal this week. Within a day of the MPR release, Deputy Governor Tshazibana delivered an address on the interest rate cycle during and after the covid-19 pandemic. The message is broadly consistent with the global monetary policy stance, “Barring materialisation of upside risks, the benign inflation outlook should allow the SARB to maintain an accommodative stance for most of the coming two years, and only withdraw stimulus in a gradual fashion, as the output gap slowly closes.” In other words, lower for longer.

As encouraging as that might seem to indebted businesses and individuals, a survey commissioned by Debt Rescue shows that at least 85% of all South Africans need help either financially, emotionally, or both, as a result of the covid-19 pandemic. The fallout from the one in 100-year event is far reaching and requires more concerted economic support than the SARB can provide.

There’s little to highlight on the data docket today, which leaves us to Twitter devices, where policy is decided in 280 characters or less.

Nema Ramkhelawan-Bhana

Local rates

Between Trump electioneering from his sick bed and the all-important MTBPS due on 21 October, markets seem perplexed as to which direction to take next. We had yet another quiet day in the rates markets yesterday with turnover amounting to only R24bn on the day. Local investors remain quite happy to sit on the side lines until MTBPS and the US elections are out of the way, while foreign investors continue to be better sellers of our bonds, having sold a cumulative R3.5bn in bonds this month already.

Yesterday we had the weekly auction announcement, with R186s, R2030s and R2044s on offer next week. This resulted in the curve flattening somewhat after aggressive steepening seen last week. Non-comp options are currently at the money and should put pressure on any rally in SAGBs until 11:00 today. With a relatively quiet data calendar today, markets will focus on macro themes and SAGBs should track the currency for direction.

BNP Paribas Personal Finance came to the debt capital markets yesterday looking to raise R500m by offering 1-yr and 3-yr notes. The auction was well subscribed with the total book size amounting to R2.097bn and a total of R566m issued. The 1-yr note cleared 7bp through the lower end of price guidance, clearing at J+117, and the 3-yr note cleared at J+155, which was 15bp below price guidance.