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09/15/20. Rand Merchant Bank: Global Markets Daily

Economics and markets The House of Commons passed the Internal Market Bill. Nvidia’s purchase of ARM now faces regulatory hurdles across the globe. AstraZeneca’s covid-19 vaccine trial resumes in the UK. China’s retail sector experienced its first annual growth since the onset of covid-19, signalling that its recovery is well underway. The yuan strengthens on positive economic data. Markets are otherwise bobbing around at current levels, as it is the FOMC’s decision, out late tomorrow, that everyone is waiting for. The rand should retain its current strength. USD/ZAR opens at 16.67; EUR/ZAR at 19.75; GBP/ZAR at 21.41 and CNY/ZAR at 2.45.   Boris Johnson’s rebellion against the Brexit accord managed to clear its first hurdle yesterday when the House of Commons passed the Internal Market Bill. It would seem this is part of the British PM’s strategy to force a deal between the EU and UK as the deadline looms ever nearer. However, there are many more hurdles ahead before the bill becomes law (and the path could be rocky, with a number of British lawmakers publicly opposed to it). Furthermore, this strategy could backfire, with the EU already making noises about taking legal action.  It is not just lawmaking which faces hurdles, with the announced purchase of ARM by Nvidia facing global hurdles as it will require the go ahead from regulators in the US, UK, EU and China. Until now, ARM has not competed with chipmakers, but rather just licenced its technology across the board. Nvidia, however, does compete with some of ARM’s customers, which means that it will have to reassure regulators that there will be no unfair practises stemming from this purchase.  However, hurdles can be overcome – two examples of this would be the resumption of the AstraZeneca covid-19 vaccine trial in the UK (it is still on hold in the US as data is considered), adding further fuel to vaccine-related hope. The other example is the news that in August, China’s retail sales grew for the first time since covid-19 forced a lockdown during the first quarter of the year. And further good news comes in the form of continued improvement in industrial production during August as well.  These data releases have pushed the yuan sharply stronger today, moving from an already stronger 6.9 against the dollar in August to around 6.8. The Hang Seng and Shanghai Stock Exchange have both moved higher, boosted by the positive news. The Nikkei is trading in the red this morning, possibly driven by some uncertainty surrounding the imminent change in leadership as Shinzo Abe steps down due to poor health. Markets are otherwise bobbing around at current levels, as it is the FOMC’s decision, out late tomorrow, that everyone is waiting for.  The domestic market will probably follow a fairly similar trend, although possibly buoyed by speculation that the move to lockdown level 1 is imminent. This will be further boosted by the news that the President is scheduled to meet with the President’s Coordinating Council and Nedlac and level 1 may be an agenda item. Otherwise, our markets will be waiting for the FOMC’s announcement, but also the SARB’s announcement on Thursday afternoon. The rand will continue in a similar vein and should retain its current strength.  May your day’s hurdles be few and easily overcome.  Siobhan Redford     Local rates With offshore investors only contributing R3bn to gross turnover yesterday, it was hardly surprising that total turnover for the day was only around R15bn, with the daily average generally around R25-30bn. This is a regular Monday phenomenon, but exacerbated this week with the Fed tomorrow and the SARB MPC announcing what the market anticipates to be a final 25bp cut on Thursday. The FRA curve is very flat where Jibar is expected to bottom around 3.25%, with only around one year out pricing in a marked increase in rates again to around 3.50%.  With issuance showing no signs of abating yet, the bond yield curve remains under pressure with the R2030/186, which is only slightly more than a three-year maturity gap, trading at a record 215bp from around 100bp before the April volatility. On offer today will be an interesting mix of belly bonds, with the R2032 and R2037 available as well as the ultra-long R2048, which generally sees demand from longer-term investors and liability managers.  There is no local data out today, but watch for Industrial Production out of the US this afternoon at 3:15pm.  Deon Kohlmeyer


further details: global-markets-daily-2020-09-15_10-05-02.pdf (156 Kb)
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