By the close of trade on Monday [Month end], the South African rand weakened against the US dollar.

  • Locally, the South African President, Cyril Ramaphosa faced off opponents in a crucial ANC National Executive Council meeting. He faced a challenge over the weekend, with his predecessor Jacob Zuma writing a hard-hitting letter against his anti-corruption stance.
  • On the data front, South Africa’s trade surplus narrowed in July. In the US, the Fed Vice Chairman, Richard Clarida, defended the central bank’s shift to average inflation targeting.
  • After the Federal Reserve unveiled major changes to the way it plans to manage inflation and unemployment. Last week, Fed chair Jerome Powell announced that the Fed will now seek to target inflation that averages 2% over time, meaning that it can allow inflation to surpass that level during periods of economic recovery. The Fed hopes that the change will help boost the labor market by keeping rates lower for longer and thus providing additional support for the economy.
  • China’s manufacturing sector continued to expand strongly in August, adding to signs of a further recovery in conditions after the coronavirus disease 2019 (COVID-19) virus outbreak earlier in the year. Production and new orders both expanded at sharper rates than in July, while firms reported the first increase in export sales in 2020 to date. Firmer demand conditions led to a sustained increase in purchasing activity, although the rate of expansion eased slightly since July. Meanwhile, staffing levels fell at only a fractional, hinting that employment was close to stabilization.
  • The yield on benchmark government bonds fell yesterday. The yield on 2026 bond dropped to 7.38%. Further, the yield on 2023 bond declined to 4.58%, while that for the longer-dated 2030 issue dipped to 9.27%.

In early trade on Tuesday, the US dollar is trading 0.6% lower against the South African rand at R16.8359, while the euro is trading 0.2% lower at R20.1509. The British pound has declined 0.3% against the South African rand to trade at R22.5688.

By the close of trade on Monday, the euro advanced against most of the major currencies.

  • The UK has said it will walk away from post-Brexit trade talks if Brussels does not drop its demand to align with EU state aid rules. UK Brexit negotiator Lord David Frost has told his counterpart Michel Barnier that the UK is not willing to compromise on this point as the potential of a no-deal exit draws closer. Brussels is demanding that the UK adopts EU rules that prevent the government from subsidising domestic companies at the detriment of Europe’s private sector. Brussels is also demanding that the UK aligns its regulations on other things like labour and environmental standards.  The Royal Navy has been told to prepare for a blockade on fishing vessels.
  • On the data front, German consumer price index (CPI) slowed on a monthly basis in August due to a VAT cut as part of the government’s stimulus push to help Europe’s largest economy recover from the coronavirus shock. Based on the inflation outcomes in several regional states, German inflation came in at 0.0% year-on-year in August, from -0.1% YoY in July. The harmonised index, relevant for ECB policy making, dropped to -0.1% YoY, from 0.0% in July. The regional data paint a picture of diverging inflationary trends in the German economy. The negative base effect from low energy prices is keeping headline inflation low but there is more: the VAT cut of July is most visible in prices for food and clothing, while at the same time inflation for services has remained almost stable.
  • The Australian Reserve Bank is widely expected to keep the cash rate at a record low when the board holds its monthly meeting on Tuesday. The meeting comes a day ahead of the June quarter national accounts, which are likely to confirm the devastating impact of the COVID-19 pandemic. But it does give the central bank’s governor Philip Lowe an opportunity to provide some final observations on the report in his post-meeting statement.

In early trade on Tuesday, the euro has advanced 0.4% against the US dollar to trade at $1.1989, while it has gained 0.1% against the British pound to trade at GBP0.8942.

The East Coast woke this morning to a cold and wet Spring day.  Happy Spring everyone.