Market Commentary: PMK Group

Market Commentary Latest Rates USD/ZAR 17.49 GBP/ZAR 20.83 EUR/ZAR 19.11 AUD/ZAR 10.40

Global

2020-03-26

Deaths have soared above the 1,000 mark in the US, with the number of reported cases skyrocketing to above 50,000. With the US being labelled as the new epicentre of the pandemic, markets are fixated by its policy response. The Fed’s exploits have been well received, something that its chairman might allude to in a rare televised interview later today. Yet, the passage of the US$2trn stimulus package, which was at risk of being derailed over unemployment insurance, is proving to be less uplifting as doubts swirl as to whether current containment measures are enough to stem the tide of infections and limit the fallout to the real economy. Today’s US jobless claims filings are expected to spiral to 1.6 million following on from last week’s 33% increase in new claims, underscoring the risk to the once- resilient labour market. Taken alongside Singapore’s 10% contraction in 1Q20 GDP, global data is starting to frame the picture of a deep recession.

The short burst of positivity demonstrated over the last two days has begun to fizzle out as markets are reminded of the severity of the pandemic, denting the performances of global bourses. S&P stock futures are down, failing to expand on two days of gains, leading many Asian markets lower. Japan is bearing the brunt of the uncertainty as the rising number of confirmed cases in Tokyo provoked a stern response from its governor, who hinted at a full shutdown if conditions deteriorate. Writing in FT Mario Draghi says a deep recession is inevitable and one of the ways to deal with it speedily will have to be for an increase in public debt.

Commodities are no less favourable as gold and oil prices buckle amid conflicting supply and demand signals. EMs are clinging to slivers of gains amid a slight improvement in risk appetite, with a moderately weaker US dollar index offering much-needed support to beleaguered currencies.

SA

Soon after some pundits had complained that the SARB’s response to date, mainly the 1% interest rate cut, was too muted, it announced it would begin a programme of purchasing government securities in the secondary market. It did not disclose the amount and said the maturity of the bond purchases would be at the discretion of the SARB. Purchases would be conducted across the yield curve.

So we have our own version of QE. The bonds are being purchased with fresh money created for the purpose. Markets loved it and, by the way, the SARB is doing much better on these purchases than the BOJ on its equities!

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

The local unit is off the highs recorded earlier in the week, rappelling from a peak of 17.83 against the US dollar to the safety of 17.35, with markets perhaps encouraged by the government’s containment measures and the provision of liquidity to the market by the SARB (expanded upon in our rates section). Granted, the recovery in SAGB yields at the start of yesterday’s session was short-lived, but that’s to be expected, with the level of overriding global risk and Moody’s looming overhead.

Police Minister Bheki Cele has been criticised for contradicting Health Minister Zwele Mkhize and Nkosazana Dlamini Zuma on the not unimportant little matter for many citizens of walking the dog. There will be many more such details to be ironed out. Cele was said to be unnecessarily “kragdadig” but may have had in mind the problem of enforcing the stay at home regime on the millions of shack dwellers in informal settlements where dogs roam anyway.

The JSE should enjoy further modest upside the commencement of today’s session with continued traction hinging almost entirely on a first crucial batch of macroeconomic data emanating from the US. Today’s initial jobless claims will represent the first “post corona” macroeconomic statistic on the world’s largest economy with the market set to infer its short-term direction from the data released.

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