Markets WRAP: Rand closes at R13.86

OVERVIEW: US stocks were mixed at the open as investors’ appetite for risk appeared sated after last week’s rally amid the resumption of trade talks with China. The dollar fell to its lowest level since October as traders assessed dovish comments from Federal Reserve chairman Jerome Powell on Friday.

The S&P 500 Index fell led by weakness in utilities and consumer staples stocks, while Nasdaq benchmarks edged up slightly on strength in telecommunications services stocks. The Stoxx Europe 600 Index retreated for the third time in four sessions. Investors are still struggling to pick a direction after the wild ending to 2018. Powell’s seemingly soothing comments on Friday and China’s moves to shore up its economy lifted sentiment somewhat, but risks loom large. And US lawmakers are still unable to reach agreement on a budget, leaving the federal government shut down for a third week.

Fresh trade talks between the US and China helped sap demand for the greenback, while Treasury yields fell following a surge on Friday. The pound slipped against the euro as UK lawmakers sought to avoid a no-deal Brexit.

The common currency remained solidly up even as data showed German factory orders fell more than expected in November.

Elsewhere, emerging-market shares jumped, and the Indonesian rupiah led gains in major currencies. West Texas Intermediate crude extended a recent rebound to trade above $49 a barrel. Gold climbed after China reported increased holdings. - Bloomberg

Oil headed for its longest stretch of daily gains in more than 17 months as the US Federal Reserve sought to ease investor concerns, China moved to stimulate its economy and OPEC production cutbacks took effect.

Futures in New York climbed as much as 3.2% after a fifth consecutive increase on Friday, when they settled at the highest closing level in two weeks. Crude is rising with other risk assets after Fed Chairman Jerome Powell said the bank could pause interest-rate increases if the US economy weakens.

Data last week showed OPEC is following through on pledges to cut output. Crude has recovered slightly this month after posting its first annual loss since 2015. While Goldman Sachs cut its oil-price forecasts for 2019, citing a re-emerging glut and resilient American shale output, the bank said a 42% drop toward the end of last year was excessive.

Volatility persists as the US and China try to negotiate an end to a trade war that risks hurting economic growth and OPEC and its allies pursue supply curbs.“It could be that prices reached a turning point at the end of last year,” said Giovanni Staunovo, an analyst at UBS Group in Zurich. “Now I expect price support as the production cuts agreed by OPEC come into force, as oil demand remains healthy, and as we face a number of supply disruptions in fragile OPEC states.”

The market could be tighter in the first quarter than previously expected, he said. West Texas Intermediate for February delivery rose as much as $1.51 to $49.47 a barrel on the New York Mercantile Exchange, and traded up $1.11 at $49.07 as of 08:52 local time.

Prices increased 5.8% last week, the most since June 29. Brent for March settlement advanced 2.2% to $58.32 a barrel on the ICE Futures Europe Exchange in London. Futures surged 9.3% last week, the biggest jump since December 2016. The global benchmark crude traded at an $8.91 premium to WTI for the same month.

The Fed’s Powell said he’s “listening sensitively to the message that markets are sending” about downside risks, invoking events of 2016, when rates were kept unchanged throughout most of the year on concerns of slowing growth in China. The prospect of a hold in US rate hikes weakened the dollar, which is typically positive for commodities such as oil that are denominated in the greenback.

Bullish Sentiment

“The statement from the Fed chair was in the direction of what the market bulls have wanted,” said Kim Kwangrae, a commodities analyst at Samsung in Seoul. “At the same time, there’s increased expectation that OPEC+ will cut its production from this month. The drop in the US rig count is also seen as a bullish factor.”

Working oil rigs in the US fell for the first time in three weeks, by eight to 877, according to data released Friday by oilfield-services provider Baker Hughes. That’s the biggest decline since the week ended December 7.

In China, a further step by the central bank late Friday to secure liquidity to the slowing economy also helped assuage some investor concerns. American and Chinese officials will begin negotiations on Monday in the hope of reaching a deal during a 90-day truce in the trade war between the administrations of President Donald Trump and counterpart Xi Jinping. - Bloomberg

OVERVIEW: US stock futures struggled for direction and European equities dropped as the surge in risk appetite from late last week lost momentum. The dollar fell to the lowest in more than two months.

Contracts on the S&P 500 and Nasdaq indexes edged lower and the Stoxx Europe 600 Index dropped for the third time in four sessions. In Asia, shares in Japan led a broad rally.

Treasury yields fell following a surge on Friday. Fresh talks between the US and China helped sap demand for the greenback, while the pound slipped against the euro as UK lawmakers sought to avoid a no-deal Brexit.

The common currency remained solidly up even as data showed German factory orders fell more than expected in November. Investors are still struggling to pick a direction after the wild ending to 2018. Soothing comments from Federal Reserve Chair Jerome Powell on Friday and China’s moves to shore up its economy lifted sentiment somewhat, but risks loom large. US lawmakers are still unable to reach agreement on a budget and Britain’s political turmoil is casting a shadow over the European agenda.

Elsewhere, emerging-market shares jumped, and the Indonesian rupiah led gains in major currencies.

West Texas Intermediate crude extended a recent rebound to trade above $49 a barrel. Gold climbed after China reported increased holdings.

Here are some events investors may focus on this week: A US delegation is in Beijing for trade talks with Chinese officials, the first face-to-face encounter since Trump and Xi agreed to a temporary truce on December 1. Wednesday sees the release of minutes from the Fed’s December 18-19 policy meeting. Powell will speak to the Economic Club of Washington D.C. on Thursday. UK Parliament resumes a debate on the Brexit withdrawal bill, with Prime Minister Theresa May seeking to avoid defeat in a vote set for the week of January 14.

These are the main moves in markets:

Stocks

Futures on the S&P 500 Index decreased 0.1% as of 07:14 New York time. The Stoxx Europe 600 Index declined 0.4%. The MSCI All-Country World Index increased 0.4% to the highest in three weeks. The MSCI Emerging Market Index advanced 1.2% to the highest in more than three weeks.

Currencies

The Bloomberg Dollar Spot Index declined 0.3% to the lowest in almost 12 weeks. The euro jumped 0.4% to $1.1445. The Japanese yen climbed 0.2% to 108.31 per dollar. The British pound increased 0.3% to $1.2757, the strongest in more than a month. The MSCI Emerging Markets Currency Index advanced 0.4% to the highest in almost six months.

Bonds

The yield on 10-year Treasuries declined two basis points to 2.64%. Germany’s 10-year yield decreased one basis point to 0.20%. Britain’s 10-year yield fell four basis points to 1.239%. The spread of Italy’s 10-year bonds over Germany’s increased two basis points to 2.7132 percentage points to the widest in almost four weeks.

Commodities

The Bloomberg Commodity Index gained 0.6% to the highest in more than two weeks. West Texas Intermediate crude advanced 2.6% to $49.20 a barrel, hitting the highest in three weeks with its sixth consecutive advance and the largest gain in more than a week. LME copper decreased less than 0.05% to $5,917.00 per metric ton. Gold increased 0.4% to $1,291.73 an ounce. - Bloomberg

Rand steady, JSE All Share gains 

The rand retreated slightly from its early high against the dollar on Monday morning to trade at 13.94/$, still up 0.13% against the greenback on the day. 

The local currency opened at 13.98/$ and reached a intraday high of R13.90 against the greenback. 

This as the dollar spot index - its value relative to a basket of six currencies of its trading partners - fell by 0.3% to 95.89 at 11:16. 

"With the rand now finally below the R14.00 mark, a renewed optimism fills the local currency market," said Bianca Botes of Peregrine Treasury Solutions in a morning note to clients.

"The recovery in the local unit has been driven mostly by a dovish Fed that stressed the importance of patience and flexibility in monetary policy, to the extent that many now even foresee a rate cut in the US. While poor performance from China, as well as the trade war, still pose a significant threat to emerging markets, for now the rand is basking in the afterglow of a subdued dollar." 

At 11:15 the JSE All Share index was up 1.24% at 52 852, with gains for Brait (+5.2%), Napsers (+2.1), Sibanye Gold (+5.6), and Tiger Brands (+2.7) among others. 

MTN executives may have expected investors to cut them a little slack after they got potential liabilities of $8.1bn in Nigeria reduced to $53m last month. Not so.

MTN stock has risen just 2.8% since the settlement on December 24, still 20% below its price in late August. That’s when Nigeria’s central bank first alleged that the Johannesburg-based wireless carrier had illegally repatriated funds from its biggest market.

MTN faces a Nigerian court hearing on February 7 over a separate claim that it owes $2bn in back taxes, which it disputes. There’s also the memory of an earlier, $1bn Nigerian fine levied on the company for failing to disconnect subscribers without proper registration.

TreasuryOne said on Monday morning that after the dollar's beating on Friday, the rand was able to surge below R14.00 to the greenback. By 10:06, the rand was trading at R13.90.

"US equities ended Friday well up after comment by Fed Chair Powell that the FED would be flexible about future monetary policy moves. This has spilled over into Asian equities that is also well up this morning.

"It came as a surprise as the US non-farm payrolls came out much better than expected. The dollar took a beating after the dovish comments and the dollar index tumbled to its weakest level in two months," it said.

"US and Chinese officials start their trade negotiations today in the hope of finding a deal. Commodities is holding up with oil still continuing its rise from recent lows. For now we need to keep our eyes on international developments to see what will happen with our local currency."

Rally in Asian markets

Asian markets rallied Monday after a blockbuster performance on Wall Street as US jobs data beat forecasts and the head of the Federal Reserve hinted at a slower pace of interest rate hikes.

China's move to make it easier for banks to lend also provided support to equities, while investors keep an eye on Beijing as negotiators begin talks to end a trade war between the world's top two economies.

Dealers started the week on the front foot following a surge on Wall Street Friday that came after figures showed more than 300 000 US jobs were created in December, tempering recent concerns about growth.

Later that day, Fed boss Jerome Powell said the bank had no "pre-set" plan for raising borrowing costs and was keeping a close watch on financial developments.

Hong Kong opens with strong gains - AFP 

Hong Kong stocks rallied more than 1% in the opening minutes of trade Monday after China unveiled measures to make it easier for banks to lend, and the head of the Federal Reserve sounded a dovish note on interest rates.

The Hang Seng Index jumped 1.52%, or 389.81 points, to 26 015.84. The benchmark Shanghai Composite Index gained 0.55%, or 13.83 points, to 2 528.70, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, opened 0.59%, or 7 58 points, higher to 1,287.07.