LOCKDOWN LEVEL Ver 3.1 [DAY 24]
TOTAL DAYS 89 – 07 HOURS 05 MINUTES
By the close of trade on Tuesday, the South African rand strengthened against the US dollar.
- The last 24 hours was a mixed bag of sentiment and investor uncertainty. The turmoil began during the Asian session, with a brief period of high volatility amid the scare over the termination of the US-China trade deal. In Europe, the risk sentiment mood was given a fresh jolt as EU PMIs beat expectations, fueling further selling in the Greenback, while in the US, trading got off to a solid start, but as the session progressed, the trends petered out.
- Asia was characterized by an utter state of perplexity following a controversial headline by US Trade Representative Navarro who stated via a Fox News interview that the ‘US trade deal with China is over’, only to walk back the comments via the Wall Street Journal minutes after. Markets went through some wild fluctuations but with no net effect after all said and done. The fact that Trump came forward via a tweet to clarify that the US-China trade deal phase one is fully ‘intact’ also assisted the favorable risk dynamics.
- Investors pin their hopes on a global economic recovery with their focus now shifting to the supplementary budget later today.
- On the data front, South Africa’s unemployment rate rose to its highest level on record in 1Q20, as key sectors, including agriculture slashed jobs. Finance Minister Tito Mboweni will this afternoon table a special adjustment budget, which is a modification of the national budget tabled in February as it makes provision for the state’s Covid-19 response. The adjustment budget will also indicate from which government departments R130 billion, which forms part of the R500 billion stimulus package, will be reprioritised.
- In the US, manufacturing PMI rose to a four-month high and services PMI rose more-than-expected in June, as businesses re-opened after lockdowns that started in mid-March.
- Further, new home sales blew past estimates on a monthly basis in May. Separately, the US Treasury Secretary, Steven Mnuchin, stated that he anticipates a new round of coronavirus stimulus to be passed by the Congress in July.
- The yield on benchmark government bonds rose yesterday. The yield on 2026 bond rose to 7.65%. Further, the yield on 2023 bond advanced to 5.10% while that for the longer-dated 2030 issue rose to 9.32%.
In early trade on Wednesday, the US dollar is trading 0.2% lower against the South African rand at R17.2140, while the euro is trading marginally higher at R19.4827. The British pound has declined 0.2% against the South African rand to trade at R21.5520.
By the close of trade on Tuesday, the euro has advanced against most of the major currencies.
- What really sparked risk sentiment in the markets was a raft of positive European PMIs, building up the notion that we may be in the midst of a sharp recovery in activity.
- June data indicated a vastly improved overall picture across the UK private sector, with the downturn in total business activity continuing to steady after the record rate of decline seen at the height of the lockdown during April. Another drop in service sector activity contrasted with a return to production growth among manufacturing companies in June. The headline seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – rose to 47.6 in June, from 30.0 in May.
- Preliminary reading of German manufacturing and services PMI improved in June. However, coronavirus-related disruptions and uncertainty continued to weigh on demand, indicating that the eurozone’s largest economy is set for a slow recovery.
- Further, the eurozone manufacturing PMI rose more-than-expected in June, as swathes of businesses reopened after coronavirus-led closures.
In early trade on Wednesday, the euro has advanced 0.1% against the US dollar to trade at $1.1318, while it has gained 0.1% against the British pound to trade at GBP0.9039.
Below is a link to a very detailed Covid-19 picture giving stats and graphs.