Second wave fears cause uncertainty ahead of supplementary budget

On Wednesday we had a day of mixed trading with world markets all heading in different directions. There is some positivity that things are heading back to normal mixed with the fear of countries loosening lockdown regulations too early, causing a resurgence in the virus. We saw the GBP lose ground most of the day against major currencies. In the morning, UK CPI and PPI data was released, painting a dismal picture of the UK economy at present. 

Thursday was a big day data wise from within the UK due to the BOE interest rate decision. Market expectations were a cut in the interest rate, but it was kept stable. As the day progressed, the GBP weakened until the decision, causing the Pound to strengthen. We saw the GBP/ZAR pair move from 21.47 to 21.75 within a few minutes.

On Friday, we saw a broad-based selloff of the GBP. All currencies strengthened quite drastically against the Pound. The market seemed to feel that although there was no rate cut, the new debt the UK government was taking on would negatively impact it over the medium term. It remains to be seen how long this selloff will continue, but for the time being it does not seem to be taking any breaks. 

As trading opened on Monday, we saw the Sterling go full steam ahead with some solid gains in the morning session. This optimism soon fizzled out and most of these gains were reversed by midday. As the day continued, markets were mixed with the ZAR weakening slightly against most major currencies, but nothing as drastic as the flows we have seen in the past few months. 

For the week ahead we look to Finance Minister Tito Mboweni who will deliver the supplementary budget on Wednesday. This will be a big event, as funds now need to be redirected to cover the costs of the COVID-19 pandemic. From a global data perspective, there isn’t all that much to take note of with UK and EU Markit PMI data on Tuesday, and US GDP data on Thursday. 

This week has the potential for turbulence – one should monitor the market closely and not be overly positioned to any side. 

Market event calendar

Tuesday 23 June 

• UK & EU Markit PMI data: Expected to improve, strengthening the EUR and GBP

Wednesday 24 June  

• SA supplementary budget: Unknown effect, could be ZAR positive or Negative 

Thursday 25 June

• US GDP data: Expected to be at -5%, any deviation would be cause for volatility