Market Commentary: PMK Group

Market Commentary Latest Rates USD/ZAR 17.53 GBP/ZAR 21.44 EUR/ZAR 19.31 AUD/ZAR 10.65

2020-03-27

Welcome to day 1 of 21-day! We are united in a common cause – to relinquish a rapidly-rising and increasingly deadly virus which has the potential to ravage the country if left unchecked. With a responsible response by all, we will hopefully limit the shutdowns and reduce the economic fallout and save lives both from a health and financial perspective. Consider that the number of confirmed cases has risen 325-fold in a matter of weeks, quicker than that of Spain or Italy in its first 20 days!

Global

A loss of traction in US futures markets, inconsistency in the Asian region, the positioning of very short term technical metrics and a marginal deterioration in investor sentiment ahead of the weekend will conspire to create selling pressure on the JSE as the week draws to a close. Very short term traders who have witnessed brisk upside in recent sessions should use the available strength to trim back trading exposure on those trades which have enjoyed outsized advances with available evidence indicating that an opportunity will emerge to re-engage the market at lower levels. Remaining trading exposure in the gold board should however be retained as near-term metrics continue to improve.

The US now has more cases than China, its 3.3m unemployment tally ended a record run of jobs growth and is but one of many drastically dismal data items emerging. The House should pass the $2TN stimulus package today while the Democrats’ Pelosi eyes the next package while the Republicans, as yet, demur. Trump is still keen to restart business and wants to classify counties by risk so that some can start. JP Morgan lowered its 1Q GDP forecast from -4% to -10% and 2Q from - 14% to -25%.

G20 leaders to inject $5TN into global economy to fight coronavirus. with targeted economic, fiscal and social measures

Markets were up yesterday and in Asia today in a classic bear market rally: Wall Street futures are down a tad.

References: PMK investment committee, Exchange 4 free , Momentum Investment Consultants, Momentum securities, RMB Global Markets

SA

We had 924 cases yesterday just ahead of the lockdown which has already seen some arrests for non- compliance. Limpopo has only 6 of them and Mpumalanga 9. Let’s hope the mass exodus that led to traffic jams on the N1 heading North out of Gauteng yesterday doesn’t simply lead to a boost in rural cases.

There were long queues outside food retailers and pharmacies while liquor stores did a roaring trade!

Edcon looks like failing as Grant Pattison told suppliers he couldn’t pay them after sales fell 4% over the last two months. Survival will be dependent on business support assistance packages offered by government and other agencies and funders. Edcon is surely not alone globally.

FNB’s Pullinger is not worried about FNB/RMB but is concerned that many SME’s will not survive.

According to the SARB’s ‘frequently asked questions’ page, its purchase of government bonds in the secondary market is not QE but a means by which to remedy disorderly market functioning. The SARB’s intention is crucial as it is a key point of differentiation between its measures and that of its counterparts which have explicitly adopted QE to resuscitate demand growth and stir inflation. In the end, a shaving of the repo rate is the bank’s conduit to support growth, complemented by its efforts to maintain financial stability.

Despite a gloomy start to the week, the depth of stimulus that has been committed globally to reinforcing growth has countered a steady stream of dismal data. Wall Street posted its third day of gains, its strongest rally since mid-February, providing a strong platform for global equities. A revival in risk sentiment amid a lessening in volatility, evidenced by a fall in the VIX, has provided a much- needed uplift to ailing EM currencies. The rand, though stronger against the greenback, which is headed for its biggest weekly fall since 2009, is lagging its EM peers, despite there being adequate support to carry it to 17.00. Perhaps the uncertainty over Moody’s pronouncement is embedded in the price, reinforcing its stickiness. Based on commentators reading of events and Moody’s extensive methodology, it is believed that the agency will place SA on a review for downgrade with a firm decision manifesting in the next three months.

References: PMK investment committee, Exchange 4 free , Momentum Investment Consultants, Momentum securities, RMB Global Markets