South Africa to Cut Support for State Companies in Latest Budget


The spread of COVID-19 outside China continued Wednesday with new confirmed cases in China falling below cases confirmed elsewhere for only the second day since the outbreak began; 1,046 new cases were confirmed worldwide with China accounting for 406 of them. South Korea cases also continue to rise with 334 new cases confirmed on Wednesday bringing total number of infections to 1,595 with 13 deaths. The first confirmed cases were also reported in Greece, Norway, Denmark and Pakistan as well as the first Latin America case in Brazil. 80 new cases were confirmed in Italy on Wednesday bringing the total to 400.


US stocks continued to trade lower on Wednesday as the market considered the impact of the increased spread of COVID-19 outside China. The WHO confirmed that Tuesday saw the number of new cases ex-China surpassing Chinese ones to raise alarm as the general view previously was that the spread was being contained within China. Losses on US stocks were reined in somewhat by a 7.9% surge in new home sales for January which grew at an annualised 764,000 against a 722,000 estimate. The DOW and the S&P closed 0.46% and 0.38% lower while the NASDAQ ended a four-day losing streak, closing 0.17% higher. Treasuries continued trading lower with 2Y and 10Y USTs closing at 1.1687% and 1.3404% respectively.


Germany is considering doing away with limits debt accumulation temporarily to provide relief for indebted regions. The move, long called for by the ECB, would give local municipalities some €20 billion to invest locally and possibly provide some cushion against economic headwinds. The proposal is far from a done deal however with some lawmakers rebuffing it hinting at the opposition Finance Minister Olaf Scholz may face. The amendment to debt limits would need a constitutional amendment requiring at least two-thirds of parliamentary support. The euro closed flat at $1.0881 while yield on 10Y and 30Y DBRs closed slightly higher at -0.505% and -0.012% respectively.


Asian stocks were lower on Thursday as the scourge of the coronavirus continued to rattle markets. The NIKKEI led the slide, down 2.13% while the ASX fell 0.75%. Announcement for more support for small to medium banks by the People’s Bank of China buoyed the CSI which closed 0.29% higher while the HANG SENG also gained 0.31%.


Lebanon paid $71 million in coupon payments on Eurobonds maturing in 2025 and 2030 in what may somewhat ease investors who are monitoring the country’s debt payments ahead of a $1.2 billion redemption due on March 9. The market appears to now be betting that the March 9 tranche will be paid with prices not having changed much since the appointment of Lazard and Cleary Gottlieb Steen & Hamilton as legal and financial advisors respectively for debt restructuring. Longer maturities have moved however with the $2.1 billion of LEBAN 21s due in April having shed about 3 points since the appointment of advisors. The government has given itself until the end of February to decide whether to repay the March 9 bond.


Banxico cut Mexico’s 2020 growth forecast to as low as 0.5% in its quarterly report on Wednesday. The forecast is a significant deviation from the government’s 2% target and represents little improvement after the economy contracted in 2019. The 0.5%-1.5% growth estimate is down from the previous 0.8%-1.8% forecast and brings it in line the 1% median estimate in a Bloomberg survey. The central bank also said it will take longer for inflation to slow to the 3% target with the rate having come at 3.52% in early February; the previous estimate was that the target would be reached in Q4 2020 but it has now been pushed to Q1 2021. The peso closed weaker at 19.2813 to the dollar while MEX 50s were lower, trading in the mid 114s.


Finance Minister Tito Mboweni seems to have ticked some right boxes in his budget on Wednesday as the government committed to cutting financial assistance to state-owned companies. While some firms received additional funding, including South African Airways, approved guaranteest for debt issued by state companies is set to decrease by an equivalent $502 million by end of March. Other aspects remained gloomy however, with the budget deficit expected to widen further to 6.8% of GDP in 2020-21, the highest on record. Gross debt is also expected to rise to 71.6% of GDP in 2022-23 form the current 61.6%. Government spending for the next 3 years is also set to decline by an equivalent $18.6 billion compared to projections in the February 2019 budget. The rand closed weaker at 15.3137 to the dollar while SOAF 49s were lower, trading in the low 99s.