Markets WRAP: Rand closes at R13.61/$

The rand closed at R13.61 to the greenback on Tuesday afternoon. The day's range was between R13.60 to R13.72.

Andre Botha, Senior Dealer at TreasuryONE said earlier that the markets saw a mixed bag in early trade. Equity markets were down in the US and Asia which usually does not bode well for EM currencies as a "skittish equity market normally means that risky assets are likely to come under pressure", he said.

"However, walking into the office this morning we see the rand edging lower against the US dollar, mainly due to the US dollar slipping against the euro.

"Gold, generally a good indication when investors are moving away from risky assets is trading above the $1300 level, and yet EM's are not wavering an inch.

"The view that the US Fed will stick to their dovish tone in tomorrow's meeting seems to have had a negative impact on the US dollar and not even the news that the US-China trade talks are not going well has seen any effect on the US dollar or EM.

"This gives us quite a clear indication of what the primary driver in the world is at the moment, and that is the Fed. The scene is set for another day of range-bound trading as the two opposing forces seem to cancel one another out, with EM's still marginally being the flavour of the week.”

Oil rose toward $53 a barrel in New York after the White House announced fresh sanctions against Venezuela’s state energy company, bringing another supply risk to the market.

Futures gained as much as 1.6%, following a 3.2% decline Monday. The Trump administration issued penalties against Petroleos de Venezuela SA which effectively block President Nicolas Maduro’s regime from exporting crude to the US.

That came hours after OPEC’s largest producer Saudi Arabia pledged deeper cuts in February as part of a deal with its allies to balance the market. Oil has rallied this year as the Organisation of Petroleum Exporting Countries and its partners implement a fresh round of production cuts to ease a global supply glut, with Saudi Arabia pledging to pump well below the limit it agreed on in December.

On Tuesday, the prospect of output disruption in Venezuela helped buoy prices even as concern over slowing growth in China capped gains.

“There is a supply risk with the sanctions,” said Petromatrix GmbH Managing Director Olivier Jakob. “You have to view them as having upside price potential. There’s a risk that Venezuela turns out to be another Libya.

”West Texas Intermediate crude for March delivery rose as much as 81 cents on the New York Mercantile Exchange, and traded up 79 cents at $52.78 a barrel as of 09:07 local time. The contract fell 3.2% to close at $51.99 on Monday, the biggest drop since December 27.

Brent for March settlement climbed 97 cents to $60.90 a barrel on the London-based ICE Futures Europe exchange, and was at an $8.13 premium to WTI. The global benchmark crude broke below $60 for the first time in almost two weeks on Monday.

US President Donald Trump assailed Maduro in a letter to Congress, explaining an executive order he issued sanctioning PDVSA and Venezuela’s central bank. The action will bolster the position of National Assembly leader Juan Guaido, whom Washington has recognised as Venezuela’s interim president. Guaido said Monday he would take control of the country’s accounts abroad and appoint new boards to PDVSA and its Houston-based subsidiary, Citgo Petroleum Corp.Read also: Venezuela Needs to Dilute Its Oil. That’s Going to Become Harder.

The sanctions will see global oil flows rerouted. Refineries in China and India are the only ones that can process Venezuelan crude outside the US, Eurasia Group analyst Risa Grais-Targow wrote in a note. PDVSA will have to “deeply discount” its oil to displace Middle Eastern crudes in those countries, she wrote.

Venezuela, holder of the world’s largest oil reserves, has seen output fall to just above 1 million barrels a day from more than 3 million a day in the late 1990s. A recovery will take time, Goldman Sachs said Tuesday.

“You’ve got to wait years before you see a game-changing increase out of Venezuela,’’ Jeff Currie, Goldman’s head of commodity research, said in a Bloomberg Television interview. “Your best-case scenario where you start to see an improved situation, an inflow of capital, is two years bare minimum.

Other oil-market news: Five tankers steaming toward the US are carrying what may be some of the last Venezuelan oil to reach America for a while. The Nymex  gasoline crack traded as low as $4.39 a barrel on Tuesday, the smallest intraday level since November 2010. Any meaningful interruption in trade  with Venezuela could trigger a test of the country’s domestic storage capacity and lead to further production declines, RBC analysts wrote in a report. - Bloomberg

OVERVIEW: It was a mixed picture across global stock markets on Tuesday, with European shares climbing, US futures trimming a drop and Asian equities slipping as investors juggled concerns about the fallout from America’s trade war with China against hopes for progress in this week’s talks.

Personal goods and travel companies were among the biggest gainers in the Stoxx Europe 600 Index as most sectors turned higher following a directionless start. Contracts on the Dow Jones, S&P 500 and Nasdaq indexes showed US stocks were heading for a lackluster open as focus turns to Apple's earnings report. PG&E tumbled in pre-market trading after the US utility sought bankruptcy protection with $52 billion in debt.

In Asia, technology stocks underperformed after American prosecutors filed criminal charges against Huawei, China’s largest smartphone maker.

Treasuries and the dollar were steady while European bonds drifted lower. After a robust start to the year for equities, investors are looking for reasons to chase the rally in a corporate earnings season that’s been mixed so far.

Against the backdrop of US-China stress and geopolitical tensions in Venezuela they also need to navigate the Federal Reserve rate decision, developments in the UK’s Brexit process and a potential slew of American economic data that was delayed by the government shutdown.

“Even though this has been a good start of the year,’’ investors now “want to be kind of defensive,’’ Ben Emons, managing director of global macro strategy at Medley Global Advisors, said on Bloomberg TV.

“Earnings will not grow strongly, and we still deal with leverage in the corporate sector that has not been unwound in any way."

Elsewhere, West Texas crude edged higher as the US slapped a de facto ban on oil from Venezuela.

Emerging-market shares and their currencies were steady. Gold rose to its highest level since June. Among key events in the coming days: Chinese President Xi’s top economic aide, Vice Premier Liu He, will meet with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday. Tech giants Apple, Microsoft, Facebook, Alibaba, Qualcomm, Tesla, Samsung and Sony announce earnings. On Tuesday the UK Parliament votes on amendments to Theresa May’s Brexit deal with the EU. The EU Parliament debates Brexit on Wednesday.

Wednesday Fed Chairman Jerome Powell holds a news conference after the FOMC rate decision.

These are the main moves in markets:

Stocks

Futures on the S&P 500 Index dipped 0.1% as of 10:53 London time. The Stoxx Europe 600 Index gained 0.7%, the biggest rise in more than a week. The MSCI All-Country World Index gained 0.1%. The MSCI Emerging Market Index climbed less than 0.05%.

Currencies

The Bloomberg Dollar Spot Index declined less than 0.05% to the lowest in more than two weeks. The euro rose 0.1% to $1.1441, the strongest in more than two weeks. The Japanese yen fell 0.1% to 109.41 per dollar. The British pound decreased less than 0.05% to $1.3159. The MSCI Emerging Markets Currency Index increased less than 0.05%, hitting the highest in more than seven months with its fifth straight advance.

Bonds

The yield on 10-year Treasuries declined one basis point to 2.74%. Germany’s 10-year yield climbed less than one basis point to 0.21%. Britain’s 10-year yield advanced one basis point to 1.274%. The spread of Italy’s 10-year bonds over Germany’s increased less than one basis point to 2.4652 percentage points.

Commodities

The Bloomberg Commodity Index gained 0.4%. West Texas Intermediate crude advanced 0.9% to $52.44 a barrel. LME copper gained 0.5% to $6,031.00 per metric ton. Gold climbed 0.4% to $1,308.41 an ounce, the highest in more than eight months. - Bloomberg

Mohsin Tajbhai has been appointed the acting chief executive officer of the GPI Group with effect from 28 January 2019, JSE-listed Grand Parade Investments announced on Tuesday morning. 

Tajbhai is the group's current chief operations officer. 

Tajbhai takes over from Prabashinee Moodley, who resigned as GPI's CEO and as an executive director of GPI in mid-December 2018. 

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions has said consumer confidence from the US and yet another vote on the Brexit deal are two of the key focus areas for today. 

"The strong recovery in the GBP saw a pullback in the overnight session, dipping just below the R18.00/£ mark while pricing against the USD remained range bound for the most part. Legal action by the US against Huawei and its CFO has thrown a hard blow at the prospect of a trade deal between the US and China, shaking the already vulnerable investor confidence. 

"With just two months to Brexit, Theresa May will certainly try to rally support for some of her proposed amendments to the Brexit deal to be voted on tonight. 

"The rand's range is expected to be R13.60 to R13.78."

The rand was trading at R13.65 to the greenback by 12:03.

TreasuryONE said in a morning note to clients that the dollar remains on the backfoot as markets expect a dovish FOMC outcome tomorrow and tensions between the US and China rose over the ongoing Huawei saga.

"Markets are concerned that the spat could negatively impact the US China trade talks that resume tomorrow. The euro is currently at 1.1433 and the pound at 1.3154 while the rand is steady at 13.6800.

The rand was trading at R13.70 by 10:25.

"Asian stocks are down this morning in line with the lower close on Wall Street yesterday. US treasury yields were a touch lower at 2.74% and 3.06% for the 10 and 30 year bonds respectively.

"Gold is holding above the $1 300.00 level while Oil is lower at $60.11 despite US sanctions imposed on Venezualian oil exports." 

Asian markets sink

Asian markets fell Tuesday as the charging of Chinese giant Huawei in the US cast a shadow over upcoming trade talks, while investors were also tracking a Wall Street sell-off fuelled by concerns corporate profits.

A busy week across the globe got off to a nervous start Monday after industrial giant Caterpillar and chip company Nvidia projected worse-than-expected results for 2019, citing ongoing weakness in China.

The announcements from two of Wall Street's big-hitters follow similar warnings from Apple and Samsung and sent shudders through trading floors.

Bitcoin's slump continues - Bloomberg

Bitcoin’s painful 2018 crash continues, with the original cryptocurrency touching the lowest in more than a month on Monday.

Falling as much as 5.2% since the weekend, the largest digital asset in the space dragged the Bloomberg Galaxy Crypto Index to its worst decline in more than two weeks. Ether and Bitcoin Cash both fell more than 10%.

It’s been a disappointing start to the year for crypto investors, who hoped that the pain of the downturn was behind them. More than $400 billion in market value was wiped out in the past 12 months as widespread adoption failed to materialise, according to data from CoinMarketCap.com. 

US confirms China trade talks to begin this week in Washington

The Trump administration confirmed it will hold two days of talks this week in Washington to discuss structural changes to China’s economy and Beijing’s pledge to buy more American goods.

The US delegation will be led by US Trade Representative Robert Lighthizer, the White House said Monday.

The US group will also include Treasury Secretary Steven Mnuchin, Secretary of Commerce Wilbur Ross, Assistant to the President for Economic Policy Larry Kudlow, and Assistant to the President for Trade and Manufacturing Policy Peter Navarro. The Chinese delegation will be led by Vice Premier Liu He.