LOCKDOWN LEVEL Ver 3.2 [DAY 30]
TOTAL DAYS 138 – 07 HOURS 29 MINUTES
By the close of trade on Tuesday, the South African rand strengthened against the US dollar.
- The dollar started the week on the front foot as equities were mixed amid a combination of US-China tensions and a gridlock in US stimulus negotiations. Overnight, risk assets are back to trading strongly, putting some fresh pressure on the greenback. In the US calendar, we have the NFIB Small Business indicator today, which consensus is expecting to flatten up after rebounding above 100 last month. Still, most market moves will continue to rely on talks around the US fiscal stimulus package.
While a breakthrough in negotiations may still not be a story for today, the news that President Trump is considering a capital gains tax cut to revive the jobs market may keep investor sentiment more upbeat.
- The Federal Reserve Board on Tuesday announced revised pricing for its Municipal Liquidity Facility (MLF). The revised pricing reduces the interest rate spread on tax-exempt notes for each credit rating category by 50 basis points and reduces the amount by which the interest rate for taxable notes is adjusted relative to tax-exempt notes. Today’s changes will ensure the MLF continues to provide an effective backstop to assist U.S. states and local governments as they weather the pandemic.
- Russia’s President Vladimir Putin, opening a meeting with the state officials, reported of the registration in Russia of the first vaccine worldwide against the coronavirus infection. “As far as I know, this morning for the first time in the world a vaccine against the novel coronavirus infection was registered,” the president said. Putin also stated that one of his daughters had tested a Russian COVID-19 vaccine on herself and that she is feeling well. The Russian leader noted that the first Russian COVID-19 vaccine forms stable cell and antibody immunity.
- Goldman Sachs has grown more optimistic about the timing for a coronavirus vaccine saying it expects at least one treatment to be widely available by next year, leading the firm to raise its economic growth outlook for 2021. Goldman raised its economic forecasts for next year as it expects “at least one vaccine” to be widely distributed by the second quarter of 2021. While the firm left its economic forecasts for 2020 unchanged with annualized GDP gains of 25.2% and 8% in the third and fourth quarter, respectively, it upgraded its full-year outlook for 2021.
- In the US, producer price index (PPI) increased by the most in more than 1 and 1/2 years in July, but the overall trend in producer inflation remained subdued amid signs the economy’s recovery from the Covid-19 recession was faltering.
- NFIB business optimism index fell in July, as coronavirus cases continue to surge across the country.
- New yuan loans were only CNY992.7 billion in July, falling from CNY1,810 billion a month ago. Aggregate financing was only CNY1,690 billion for the same period, decreasing from CNY3,430 billion in June. Both numbers were the lowest growth numbers since February 2020 when banks were closed for the Chinese New Year holiday. All items in aggregate financing grew less than a year ago, except for yuan loans and stock fundraising. This means that not only shadow banking activities decreased on a yearly basis but also corporate and government bond issuances decreased too.
- Back in SA, on the data front, manufacturing production index fell less than expected on an annual basis in May. As South Africa’s beleaguered economy began the process of moving out of the harshest phase of the Covid-19 lockdown restrictions.
- The yield on benchmark government bonds mostly rose yesterday. The yield on 2026 bond rose to 7.40%. Further, the yield on 2023 bond declined to 4.47% while that for the longer-dated 2030 issue rose to 9.26%.
In early trade on Wednesday, the US dollar is trading 0.5% higher against the South African rand at R17.5543, while the euro is trading 0.3% higher at R20.5775. The British pound has gained 0.3% against the South African rand to trade at R22.8748.
By the close of trade on Tuesday, the euro advanced against most of the major currencies.
- The saying that you can’t have your cake and eat it is vividly playing out currently in the emerging currency crisis in Turkey that saw the lira plunge 2.7% last week, the biggest daily decline in more than a year and wiping out 17.8% of its value. Although the lira rebounded slightly on Friday, amid central bank measures aimed at shoring up bank liquidity and limiting speculation in the currency, the lira remained under pressure, trading at 7.34 against the US dollar on Monday.
- The New Zealand Dollar could be due for heightened market activity on Wednesday. This is judging by NZD implied volatility readings, which are extremely elevated, as FX traders gear up for a scheduled monetary policy update from the Reserve Bank of New Zealand (RBNZ). The RBNZ interest rate decision is due Wednesday, August 12 at 02:00 GMT and a press conference spearheaded by RBNZ Governor Adrian Orr will follow.
- German investor sentiment picked up more than expected in August, reflecting hopes that Europe’s biggest economy is on the road to recovery after the devastation caused by the coronavirus pandemic.
- The eurozone economic sentiment increased during the same period.
- Prime Minister Jean Castex said on Tuesday that France’s coronavirus infection rate was headed in the wrong direction and that a collective response was necessary if it was to avoid losing control of the rebound in cases. The public was becoming careless, Castex warned, after official data recorded nearly 5,000 new COVID-19 cases from Saturday to Monday. The epidemic has killed more than 30,300 people in France. A collective response was necessary if France was to avoid losing control of the rebound in cases.
In early trade on Wednesday, the euro has slipped 0.2% against the US dollar to trade at $1.1722, while it has weakened marginally against the British pound to trade at GBP0.8996.
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