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GM Daily: Tweet tweet

Global: Trumps derails stimulus talks with a single tweet

SA: SARB reiterates data dependence in MPR

Rand: Consolidating sub 16.60 after a rough start to the day

Local rates: EM currencies under pressure

What to watch today

JN Leading Index CI
JN Coincident Index
GE Industrial Production WDA (y/y)
SA Gross Reserves
SA Net Reserves
UK House Price Index (y/y)
UK Unit Labor Costs (y/y)
SA SACCI Business Confidence
US MBA Mortgage Applications
US FOMC Meeting Minutes
US Consumer Credit
CH Foreign Reserves

Covid-19 update

Source: WHO, NICD

Economics and markets

Trump singlehandedly derailed US stimulus talks with a single tweet.
Chaos ensued before a conciliatory remark asking for additional assistance calmed stormy waters.
Biden might be the shoo-in to win the presidential vote, but Trump isn’t going to make it easy.
Stimulus will undoubtedly be a talking point at the VP debate scheduled for tomorrow.
Remarkably, the EU is in less disarray, with complementary monetary and fiscal support buttressing the region.
EMs are trading largely in the green, at least as far as their currencies go, recouping early morning losses.
Whether the local bond market takes its lead from the currency is debatable, especially after yesterday’s local auction.
USD/ZAR opens at 16.73; EUR/ZAR at 19.63; GBP/ZAR at 21.53 and CNY/ZAR at 2.42.

In a grand show of authority rather than influence, Trump singlehandedly derailed US stimulus talks with a single tweet. His comment showed complete disregard for any and all progress between the House and Republicans and turned a blind eye to urgent calls by the Fed to increase spending. Chaos ensued before a conciliatory remark asking for additional assistance calmed stormy waters. Risk aversion had already set in by that stage and all it took was the flick of a wrist. Whether clever electioneering or simply ignorance to the greater economic problem at hand, Trump has once again turned global market fortunes.

Biden might be the shoo-in to win the presidential vote, but Trump isn’t going to make it easy, as he campaigns in quarantine through social media. To date, the president has tweeted more than 56,000 times to a following of more than 87 million. That is one-third greater than South Africa’s population! The point being that rhetoric extends beyond official policy and political events and the uncertainty that is increasingly being priced over the next three months is more than justified.

Stimulus will undoubtedly be a talking point at the VP debate scheduled for tomorrow, though the hype around the discussion has been downplayed owing to the outbreak of covid-19 at the White House. Unlike many a country in debt distress, the US government is in an ideal position to augment its borrowing, what with rates near 0% and inflation running below target. Additional stimulus therefore poses little danger to the Treasury’s balance sheet. The upshot is that until a deal is struck, the burden of risk lies with the Fed. Powell might be adamant, but the September policy decision was not unanimous, raising questions about further QE.

Remarkably, the EU is in less disarray, with complementary monetary and fiscal support buttressing the region as it navigates a two-speed recovery. That’s unlikely to allay trading concerns which will probably manifest in mixed trading on regional bourses and in rates markets. That uncertainty will spread well beyond Europe, though EMs are trading largely in the green, at least as far as their currencies go, recouping early morning losses. The rand and peso are leading the pack – a common occurrence over the last month, though momentum is still lacking on both currency pairs to break key support levels against the greenback. Slight bearishness is still being expressed through the options market as one-month risk reversals on the most liquid EM currencies, including the rand, lira and real, tick higher. Spot will continue to anchor these moves in the short end of the vol curve.

Whether the local bond market takes its lead from the currency is debatable, especially after yesterday’s local auction. Offshore investors showed remarkable interest in the long end of the curve, compensating for the lack of interest locally. Interest in SAGBs will vary ahead of the all-important MTBPS, which will either alleviate or aggravate fiscal risks. This is a concern shared by the SARB in its Monetary Policy Review, released yesterday, which provided little more in terms of the rates view, reiterating the Bank’s data dependence. Of greater interest are strides being made in rooting out corruption, a necessary and most encouraging development in an effort to bring about sweeping reform. We will look to official channels rather than Twitter for more guidance on this one.

Nema Ramkhelawan-Bhana

Local rates

With the back end of the nominal curve continuing to widen, the ultra-longs cleared yesterday’s auction around the 11.80 handle. While participation and general appetite for nominal bonds by local participants has remained steady, offshore accounts have been relatively quiet despite the curve offering attractive yields. Domestic news has been relatively positive of late, but the trading and skittish price action across SAGBs suggests uncertainty ahead of the upcoming MTBPS.

Emerging market currencies are on the back foot against the greenback this morning, reversing some of its earlier gains with the domestic currency trading 10 cents weaker, around the 16.65 level. We anticipate the front end of the implied volatility curve to trade a touch softer once the London markets open as the three-month at-the-money was offered around 17.70 in yesterday’s closing session.

The interest rate desk is seeing elevated option interest this week, with some R209s short-fences and R2037s collars prices being made, local real money were payers of the front end of the FRA curve while we saw sub 10-year butterfly receivers yesterday. On the auction front, the R2030s cleared auction at 9.55 (market 9.58) with a bid-to-cover ratio of 3.69, the R2040s cleared auction at 11.78 (market 11.81) with a bid to cover ratio of 2.83, while the super-long cleared auction at 11.78 (market 11.81) at a bid-to-cover ratio of 2.89. Good luck out there.