Waiting for the Fed

Insights
Newsroom
News
Waiting for the Fed

Global Markets Daily: Waiting for the Fed

Global: Geopolitical tensions intensify across the globe

SA: Second quarter Business Confidence to be released later today

Rand: Strength continues to define the rand’s week

Local rates: Auction well attended

What to watch today

JN PPI (y/y)
CH PPI (y/y)
CH CPI (y/y)
SA BER Business Confidence
US MBA Mortgage Applications
US CPI (y/y)
US FOMC Rate Decision
US Interest Rate on Excess Reserves

Covid-19 update

Source: WHO, NICD

Economics and markets

Asian stocks have shown flat and mixed trading patterns, and it would be no surprise if this extends to the domestic trading session, as participants wait for the FOMC decision later today.
Global news flow will probably be dominated by geopolitical spats which seem to be popping up everywhere, from US-Sino tensions to the continued Brexit talks stand-off.
The second quarter’s Business Confidence Index will be released later today, which should provide some insight into the impact of lockdown on SA’s construction, manufacturing, retail, wholesale and new vehicle sales sectors.
The rand continues its strengthening trend against the dollar, now opening less than 15 cents above our expected 16.50 year-end value, but beware volatility.
USD/ZAR opens at 16.63; EUR/ZAR at 18.86; GBP/ZAR at 21.17 and CNY/ZAR at 2.35.

By the looks of it, today is going to be all about waiting for the Fed. Asian stocks have shown flat and mixed trading patterns, and it would be no surprise if this extends to the domestic trading session. Once again, there isn’t much in the way of data releases to move global markets, and domestically, the second quarter’s Business Confidence Index will be released later today, which should provide some insight into the impact of lockdown on SA’s construction, manufacturing, retail, wholesale and new vehicle sales sectors.

Eyes will largely be on the western horizon, with the FOMC announcement the most important event for global markets today. The Fed has offered a substantial amount of support to the US economy in the wake of the covid-induced crisis, and expectations are for further accommodation to be extended through the bond-buying programme, some kind of yield curve control or perhaps another channel.

Thus the global news flow will probably be dominated by geopolitical spats which seem to be popping up everywhere. Over and above the US-Sino tensions, North Korea seems to be cutting off all communication with South Korea, Germany and Russia are in a longstanding standoff of sorts, and now President Donald Trump seems to be considering removing a large portion of US troops stationed in Germany, thereby further weakening Angela Merkel’s position. And as we head into the middle of the year, we continue to hear Brexit deal-related concerns. The UK is adamant that all ties with the EU will end come 31 December, deal, or no. The latter option would probably hurt both sides more than if a deal is reached, at a time when the global economy has already suffered a significant negative shock.

Largely in response to the risk-on rally, the rand continues its strengthening trend against the dollar, now opening less than 15 cents above our expected 16.50 year-end value. The rand, however, is definitely characterised by high volatility, and so the path to the year-end will probably include many ups and downs still.

While we await the Fed’s pronouncement later today, enjoy the relative quiet – markets will return to volatility, it is almost inevitable, so recharge as and when the opportunity arises.

Siobhan Redford

Local rates

With the equity markets rallying and being supported by a stronger currency, the fixed income environment continues to underwhelm from an activity perspective. The increased issuance take-up has not been as smooth as the National Treasury would have hoped. Despite this, yesterday’s auction was relatively well attended. The R186s cleared auction at 7.53 at a bid-to-cover ratio of 2.84, the R2030s cleared auction at 8.98 at bid-to-cover ratio of 3.23, while the R2048s cleared auction at 11.07 with a bid-to-cover ratio of 2.27. On the day, we saw better nominal sellers with auction purchases closing out-of-the-money. The curve remains relatively steep while the front end maintains a bid tone. The ILB curve is seeing some activity in the back end from local real money, while there were some receiving cares out to 30 years on the IRS curve but activity in this space remains spurious.