"Back to being bearish on small caps: This last bout of optimism is likely to signal the end of the Trump Put, as friction arises over the funding the bill. We now see four key reasons to be cautious on small caps."
While CDS markets had largely priced in a downgrade (with levels approaching those of Brazl), FX markets seemed surprised when moments ago S&P downgraded South Africa to junk, cutting it from BBB- to BB+, in the aftermath of last week's sacking of finance minister Gordhan by president Zuma.
For all of you pension funds out there scooping up all of the AAA-rated slugs of the latest auto ABS deals for the 'juicy yield', now might be a good time to review what happened to the investment grade tranches of MBS structures back in 2009...
South Africa's sacked finance minister Gordhan told reporters that he and his deputy "learnt our fate from the TV screen. Not from any phonecall, chat or conversation. So that was I’m sure as interesting for us as it was for you."
"we believe the current C&I slowdown reflects payback from credit facility usage by commodities firms, many of which began drawing upon credit lines in late 2015 as financial conditions tightened and the debt issuance window closed" - Goldman
The rand tumbled as much as 1.7% and banking shares on the Johannesburg bourse fell more than 2% after South African President Jacob Zuma unexpectedly ordered Finance Minister Pravin Gordhan to return from an investor roadshow to Britain and the United States on Monday because he "did not give permission for the trip" a government source said.
"... nascent signs of cross-asset distress accelerated further this past week... it’s fair to say that we are experiencing a bit of a global 'Tightening Tantrum'... the prior two instances where [the model breaks], we have seen a concurrent doubling-plus in VIX..."