The Markets Daily

Monday’s are often the least loved day of the week – after all it is the day which drags us from our carefree weekends and back to the reality that there is work to be done. That said, this Monday has started on a good note if you are in anyway impacted by the blockage of the Ever Given in the Suez Canal with news headlines suggesting that the ship has been partially refloated

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The risk-off tone persisted throughout Thursday with US treasury yields and equity futures holding losses despite there being no discernible catalyst driving trade. The better than expected weekly US jobless claims figures and revision to US 4Q20 GDP attracted treasury buyers, reflecting how fickle economic sentiment is.

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I’m not quite sure what to make of markets this morning. Perhaps Johannesburg’s dull weather is clouding my mind, but it all seems counter to the exuberance with which we started the year. Regardless of fundamental improvements, evident in positive European PMI readings, covid-19 is the great equaliser.

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The benchmark 10-year US Treasury yield continued to ease, dipping below 1.6%. However, that did little to help risk assets as the extension of lockdown restrictions weighed on risk appetite. Global equity stocks closed in the red across the board yesterday, while EM currencies remained on the back foot as the US dollar strengthened on safe-haven demand.

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Locally, focus turns to the SARB this week. We expect the MPC to keep the repo rate unchanged at 3.50% given the large output gap and relatively contained inflation. The better-than-expected 4Q20 GDP outcome will likely lead to an upward revision of the SARB’s growth outlook. The SARB is also likely to lift its inflation outlook due to higher fuel prices since the January MPC meeting and NERSA’s announcement allowing Eskom to raise electricity tariffs by 15.6% in FY21/22.

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As I perused the news headlines, I could hardly believe the number of positive stories. Perhaps I should read more widely, or Friday has inspired me to be more optimistic about SA’s prospects. By now, you’re aware that the winning bidders to provide emergency power have been announced by the Ministry of Mineral Resources and Energy.

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Fed up with the fuss over the Federal Reserve? Fear not, for the furore has settled. The Fed has made its pronouncements and, as expected, maintained a dovish stance, staying pat on rates and the pace of asset purchases. The market has taken kindly to J Powell’s updated economic projections, which reflect that a strong recovery will have only a fleeting impact on inflation.

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If we could sum up the daily in two words, it would be ‘The Fed’. As the main protagonist in today’s global literary works, the federal reserve holds the pen on the broader markets story. Today’s FOMC meeting is perhaps the most crucial in the last 6 months. Conditions have altered dramatically since the committees January sitting, manifesting in higher US treasury yields and a tightening of financial conditions.

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A good colleague and I often quip that Tuesday is merely Monday part two. Much of today will be trading yesterday’s residual anxiety over the Fed. As we while away the hours to the FOMC, the local market will busy itself with the weekly bond auction and quarterly FX futures roll.

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The key event this week is the Fed’s policy setting meeting taking place on 16-17 March, which will followed by a press conference and release of economic projections. The January meeting statement reaffirmed policymakers’ stance of achieving maximum employment and 2% inflation over the longer run, while the December meeting projections showed no rate hikes to the end of 2023.

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