Vaccine news spurs new hope

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Vaccine news spurs new hope

GM Daily: Vaccine news spurs new hope

Global: East vs west

SA: SAHRC to engage with COGTA on lockdown regulations

Rand: Buoyed by positive vaccine news, risk-on environment will keep rand stronger in today’s trade

Local rates: Good auction

What to watch today

JN Tokyo Condominiums for Sale
UK CPI
UK Retail Price Index
SA CPI
UK House Price Index
US MBA Mortgage Applications
US Import Price Index
US Export Price Index
US Capacity Utilization
US Manufacturing (SIC) Production

Covid-19 update

Source: WHO, NICD

Economics and markets

A trial of a potential vaccine for covid-19 has shown the presence of antibodies which, while not defining total success, takes Moderna’s current vaccine work a step closer.
The Dow raced ahead, closing over 2% higher yesterday, lagged by the S&P 500, which recorded a respectable 1.34% gain, followed by the Nasdaq’s 0.94% rise.
South Africa should expect to see this positive sentiment extending to today’s trade, and the risk-on environment will also maintain current rand strength.
Donald Trump signed legislation allowing for US sanctions against Chinese and Hong Kong officials involved in the imposition of the recent national security law on Hong Kong, as well as rescinding the city’s special economic status.
SA’s May CPI, out later today, is expected to show a second substantial decline, printing at 2% y/y as the April decline in oil prices was passed through to May’s fuel prices.
USD/ZAR opens at 16.75; EUR/ZAR at 19.09; GBP/ZAR at 21.01 and CNY/ZAR at 2.39.

In a horse race where, for the winner, the prize will definitely be a revenue increase, but the spectators are really just backing any horse to finish the race as soon as possible, Moderna has taken the most recent lead. A first, smallish trial of a vaccine for covid-19 in development has shown the presence of antibodies which, while not defining total success, takes the company’s current vaccine work a step closer. Let us hope that this will be one of many steps forward.

Naturally, as covid-19 really is the dominant feature of health and economic outcomes this year, we have seen markets react positively to the news. The Dow raced ahead, closing over 2% higher yesterday, lagged by the S&P 500, which recorded a respectable 1.34% gain, followed by the Nasdaq’s 0.94% rise. Canada and Brazil’s bourses also responded positively and ended yesterday over 1.7% up on the day. Risk-on trade has continued, with the ASX, Nikkei and Indian bourses all up comfortably over 1.5% thus far. This bodes well for SA’s trading session today, which should continue following global trends as well as all EM currencies, with the rand expected to maintain recent strength. However, where the rest of the world has shrugged off increased geopolitical tensions between China and the US, the Hang-Seng and the Shanghai Stock Exchange have bucked the global trend, trading in the red today.

This is on the back of the official change of Hong Kong’s status in the US, as President Donald Trump signed legislation which will allow for the implementation of sanctions on Chinese and Hong Kong officials involved in the national security law imposed on China’s Special Administrative Region. Another order further strips Hong Kong residents of the privilege of visa-free travel to the US, as well as Hong Kong’s special economic status – it will now officially be treated like China. Entering a skirmish which does seem to be a bit of east versus west has been the UK, which has declared that Huawei technology will not be used in its 5G network and those components already installed are to be replaced by 2027. It should be no surprise that China is threatening a response with sanctions on US officials, and also declaring its disappointment in the UK – a polite warning that it may consider some kind of retaliation unless the UK backtracks?

South Africa enters Wednesday on a relatively good note, having seen mining production in May printing better than expected, with the year-on-year decline at 29.8%, and the month-on-month recovery a robust 44%. Not wanting to throw shade on this party, but while there were lower annual changes relative to April across all mining sub-sectors, and improvements in monthly terms, in index terms, mining production remains below the volumes seen as we entered 2Q20. We expect the next data release, SA’s May CPI, out later today, to show a second substantial decline, printing at 2% y/y as the April decline in oil prices was passed through to May’s fuel prices.

Another notable event from yesterday was the agreement to the proposed business rescue plan for SAA by its creditors. Confirmation of government's support and commitment to provide the requisite funding for the various obligations is to be received today. The agreement to form a technical committee between the SAHRC and COGTA to ensure that existing and future covid-19 state of disaster and lockdown regulations are consistent with maintaining human rights was another positive step. Finally, weighing in on the debate about the Special Adjustment Budget was the Minister of Finance, who emphasised in an open letter that South Africa cannot spend its way out of its current low-growth environment, especially as it is not consequence free. This was in response to the call to parliament by an external group of economists and other people to reject the SAB.

Siobhan Redford

Local rates

The nominal market appears to have found its footing, with participants adjusting to the increased supply, yesterday’s auction was well attended and probably a better auction than we have seen in recent weeks. The R186s cleared auction at 7.76 (market 7.76) at a bid-to-cover ratio of 3.60, the R2030s cleared auction at 9.48 (market 9.49) at a bid-to-cover ratio of 3.49, while the R2048s cleared auction at 11.62 (market 11.60) at a bid-to-cover ratio of 2.02. The R186s and R2030s cleared marginally stronger than market, closing 4bp below auction levels, the ultra-long also closed a bit tighter, resulting in mild steepening pressure on the curve. Flows on the nominal desk have picked up, with both local and offshore investors getting involved, the latter are relatively better buyers of shorter-dated bonds while local real money trades across the curve. Purchasing for R186s, R2030 was persistent post-auction, while local fast money accounts expressed interest in the R2040s. On the linker end, we are still seeing some decent buying interest ahead of the CPI, the I2038s and I2046s are still in demand from local fast money accounts. The interest derivatives saw some receiving interest sub 10-yr yesterday. The rand continues to hold the line around the 16.70 level.