Waiting for a deal

Insights
Newsroom
News
Waiting for a deal

GM Daily: Waiting for a deal

Global: Brexit deadline extended

Domestic: President Ramaphosa to deliver SA’s economic recovery plan this afternoon

Rand: Currency will provide immediate gauge of market reception of economic recovery plan

Local markets: Economic Recovery Plan to set the tone

What to watch today

CH PPI (y/y)
CH CPI (y/y)
SA Non-Farm Payrolls (q/q)
SA Non-Farm Payrolls (y/y)
US Empire Manufacturing
US Initial Jobless Claims
US Continuing Claims
US Import Price Index (y/y)
US Export Price Index (y/y)
US Philadelphia Fed Business Outlook

Covid-19 update

Source: WHO, NICD

Economics and markets

The deadline for Brexit negotiations before the UK and the EU walk away without a deal has arrived; however, it now seems to have been extended to the end of the month, or early November.
Now early November will pack quite the news punch for the global economy as the Brexit deadline will coincide with the US elections.
South Africa will not only be a spectator to this concentration of risk events, but will itself add further domestic event risk with the delivery of the MTBPS pushed to the end of October.
Markets remain jittery given increased covid infections, continued uncertainty over Brexit talks and fading hopes of a new stimulus package for the US.
Rand movements will be driven by the market’s reception of the economic recovery plan delivered by President Ramaphosa later today.
USD/ZAR opens at 16.53; EUR/ZAR at 19.42; GBP/ZAR at 21.51 and CNY/ZAR at 2.46.

I have just been away for the last two weeks, and what a glorious two weeks it was in one of South Africa’s many gems – Kruger National Park. Fresh air, nature at its best and really intermittent cellular signal. What was most striking was that despite people in SA flocking to local holiday destinations, masks are being worn in public areas by most people and sanitiser is available at every entrance. It gave me hope that SA’s second peak, should it arrive, could be relatively contained (although recent reports on the transmission at an SA nightclub are less heartening). It is important that as we congregate more and more that we do not forget the precautions that must be taken, otherwise SA will be forced to see increased restrictions on movement like those already happening in Paris and likely to escalate further in the UK soon.

Now back to reality, and the news tells me that the Brexit negotiations continue. Today was the deadline that UK PM Boris Johnson had set for negotiations before he would walk away without a deal; however, it seems that this deadline has been extended to the end of the month, or early November. It would seem that people involved in the negotiations believe that a deal can be made with Germany putting pressure on France to compromise on their position on fisheries. So now early November will pack quite the news punch for the global economy as this will coincide with the US elections. South Africa will not only be a spectator to this concentration of risk events but will itself add further domestic event risk with the delivery of the MTBPS pushed to the end of October.

Markets remain jittery given increased covid infections, continued uncertainty over Brexit talks and fading hopes of a new stimulus package for the US. US bourses closed lower on Wednesday with additional impetus coming from disappointing results out of Wells Fargo & Co and Bank of America. This morning US futures are lower alongside the Nikkei and Hang Seng. SA is likely to follow suit as market sentiment tracks the progress, or lack thereof, in the negotiations in the US and UK (in particular).

The president will deliver SA’s economic recovery plan this afternoon. As is well known, SA’s fiscus has ballooned, requiring the government to increase its borrowing, which is accompanied by increased interest obligations. Thus, this economic plan will be interesting as it is unlikely to be characterised by increased fiscal expenditure, the normal route for government economic stimulus, and hence will require some prudent, practical and even creative solutions to SA’s many challenges. The president’s plan should give us some insight as to what to expect in the MTBPS later this month. Rand movements will be driven by the reception of the recovery plan by markets.

My recent holiday only cemented for me that SA really is a land full of potential. Hopefully today’s recovery plan will take the country one step closer to realising this potential.

Siobhan Redford

Local rates

Yet another muted day in SAGBs as the market waits for the economic recovery plan and the MTBPS that has been delayed. The market hasn’t reacted too badly to the delay of the MTBPS and was more focused on the announcement of the auction bonds for next week. The National Treasury announced that the R186s, R2032s and R2040s will be on offer next week and this helped support the curve.

Today’s main focus will be the economic recovery plan announced at 2pm. We expect markets to trade in a muted fashion, focusing on the non-comps which expire at 11. The options are currently at the money, so it will be important to see how many bonds do get taken up. The market might struggle to absorb the full R6.6bn on a Thursday, so if there is a partial exercise of the options, the market might have more room to rally.