Markets WRAP: Rand closes at R14.21/$

The rand closed at R14.21 to the greenback on Wednesday afternoon. The day's range was between R14.15 and R14.23.

Earlier TreasuryONE said in a morning note that while the GDP data released on Tuesday was positive for the rand, the strong dollar has since forced the local unit back to R14.20.

"The dollar is being driven by rising US Treasury yields, expectations of positive news on the trade front and good economic data." 

The Financial Sector Conduct Authority has announced it is investigating 13 cases of possible insider trading, 14 of market manipulation and seven of false or misleading reporting at JSE-listed companies.

In an update earlier in the week the FSCA said that investigations into share trading patterns and complaints should "not be construed as an indication that any violation of a law has occurred, or as a reflection upon any person, entity or security".

South African stocks are the cheapest on record relative to their emerging-market peers, but they’re still not cheap enough for foreign investors.

Offshore players have been net sellers of South African equities for 11 straight days through Tuesday, the longest streak of outflows in six months, according to JSE data.

They have sold a net R25.4 billion in the year to date, the largest outflow for the corresponding period since Bloomberg started compiling the data in 1999. Johannesburg’s benchmark stock gauge is the cheapest relative to the MSCI Emerging Markets Index since Bloomberg started tracking the data, based on estimated price-earnings ratios, a key attraction for value buyers. But stagnant economic growth, worries over electricity supplies and the volatile rand have deterred potential investors in Africa’s biggest equity market, with a capitalisation of about $473 billion.

“Chronic economic growth underperformance has exerted a drag on the JSE,” said Jana van Deventer, a Johannesburg-based economist at ETM Analytics. “The fact that foreigners are rotating out of the stock market suggests that the international investor community is not convinced that the growth-enhancing reforms introduced thus far will suffice to kick start the domestic economy.

”Inflows into the country’s bond market of R10 billion this year have partly offset the stock outflows. South Africa relies on portfolio inflows to fund a current-account deficit that swelled to 3.5% of gross domestic product in the third quarter of last year. The country’s stock market is missing out on the “wall of money” heading into emerging markets due to a dovish Federal reserve, thawing trade tensions and easing concerns over global growth, according to the Institute of International Finance.

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions has said that the rand has remained largely range bound during the past few days, trading between R14.12 and R14.28 to the greenback with upbeat data from the US capping the rand's buoyant momentum.

"Tuesday’s Q4 2018 GDP figures showed an increase in production from transport, manufacturing and the agricultural sector. This provided the currency with some brief support, with the chance of no downgrade by Moody's later this month being reiterated.

"Today’s economic calendar is notably light with the US trade balance to be released today being the most dominant piece of data. Some caution is likely in the local market as fuel price increases are sure to drive inflation higher although it is largely expected to remain within the target range.

"Markets are seeking some fresh developments on the US-China trade talks to provide solid directional guidance.The technical levels remain unchanged with a range of R14.08 to R14.32 expected today."

By 11:21, the rand was trading at R14.20.

The rand dipped slightly on Wednesday morning after strengthening on Tuesday following the release of GDP data.

In a morning note to clients, TreasuryONE had this to say: "GDP data released yesterday was positive for the rand and we saw the currency trade down to 14.1150, but the strong dollar has forced the rand back to 14.2050 this morning.

"The dollar is being driven by rising US Treasury yields, expectations of positive news on the trade front and good economic data. We have the Dollar trading at 1.1297 against the Euro and 1.3133 against the Pound.

"The 10y bond yield is up at 2.706% and the 30y at 3.076% while US stocks closed marginally lower across all three the indices."

Precious metals have lost some of their lustre, the note added, with gold trading at $1 287.10 and palladium at $1 515.65. Brent is off its recent highs at $65.40.

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