Markets WRAP: Rand closes at R14.22/$

The rand closed at R14.22 to the greenback on Tuesday afternoon.

The day's range was between R14.07 and R14.25.

Andre Botha, Senior Dealer at TreasuryONE said earlier that the rand enjoyed the Moody's no rating downgrade hangover and drifted lower due to the better risk sentiment in the market.

"Better manufacturing numbers out of the US and China also improved the risk sentiment and alleviated a bit of the global growth concerns.

"The rand closed the day at R14.15 against the US dollar with the current sentiment for further rand strength. Another factor that shows that risk is seeping out of the market is the fact that Gold is sliding lower, which is normally the case when the market settles.

"Gold holds the honour of being a safe haven currency in times of extreme market volatility. This morning we have seen the US dollar on the front foot again and looking to break below the 1.12 level against the Euro. Due to the little surge in the US dollar, we have seen the Rand retreating back above the R14.20 and we expect the Rand to trade sideways as consolidation after last week’s events happen and the data cupboard being empty.”

US equities pushed lower and European shares climbed as investors took stock of the strong rally that started the week. Treasuries also rose, while the pound weakened after Britain’s parliament once again failed to reach a consensus on Brexit.

The Dow was dragged down by Walgreens Boots Alliance after lower pharmacy reimbursements hurt earnings at the drugstore chain. Real estate and consumer staples companies were the biggest sector decliners in the S&P 500.

Carmakers led the Stoxx Europe 600 Index toward the highest close this year. Asia’s benchmark finished broadly unchanged as Japanese shares slipped and stocks in Shanghai and Seoul advanced.

Positive sentiment in the first quarter has spilled over into the second, and global equities began this week building on the best start to a year since 2010 as traders bet on looser monetary policy.

Still, a myriad of risks remain, including Europe’s slowing growth, Britain’s difficult split with the European Union and the lingering trade war. US-China talks are set to resume when Vice Premier Liu He leads a delegation to Washington later this week.

“The world is cautiously optimistic - hoping for the best, but preparing for the worst,” said Jay Pestrichelli, founder and chief executive of ZEGA Financial, which manages around $400 million.

Elsewhere, Bitcoin jumped as much as 23% to its highest level since late November, according to Bloomberg composite pricing. Australia’s dollar declined and its 10-year bond yields pared gains as the central bank hinted at a shift toward more dovish monetary policy.

These are the main moves in markets:

Stocks

The S&P 500 Index dropped less than 0.1% as of 10:14 New York time, while the Nasdaq Composite Index was little changed and the Dow Jones Industrial Average dropped 0.3%. The Stoxx Europe 600 rose 0.4%. The MSCI Emerging Market Index increased 0.3%. The MSCI Asia Pacific Index rose less than 0.1%. 

Currencies

The Bloomberg Dollar Spot Index gained 0.2%. The euro eased less than 0.1% to $1.1204, while the yen weakened less than 0.1% to 111.36 per dollar. The British pound weakened 0.5% to $1.3037. The MSCI Emerging Markets Currency Index was little changed. 

Bonds

The yield on 10-year Treasuries declined two basis points to 2.48%. Germany’s 10-year yield fell two basis points to negative 0.05%. Britain’s 10-year yield fell five basis points to 1%.

 Commodities

West Texas Intermediate rose 0.9% to $62.15 a barrel. Gold advanced 0.2% to $1,289 an ounce. The Bloomberg Commodity Index fell 0.1%. - Bloomberg

Bitcoin climbed suddenly on Tuesday to the highest level since November, leading a surge in virtual currencies and ending three months of calm in the $160 billion market.

Traders struggled to pinpoint reasons for the rally, which briefly propelled Bitcoin above $5000 and increased the value of digital assets tracked by CoinMarketCap.com by about $17 billion in less than an hour. - Bloomberg

Britain’s pound presents the biggest opportunity within developed-market currencies with a probable break-the-Brexit logjam moment coming soon, according to Goldman Sachs.

“We’re coming to a big finish here,” Zach Pandl, Goldman’s co-head of global foreign exchange and emerging market strategy, said on Bloomberg Television after the UK Parliament again rejected all alternatives to Prime Minister Theresa May’s unloved deal to leave the European Union.

“We do think we’re making progress despite these failed votes.”

Instead of a prolonged stalemate or a chaotic no-deal scenario, Pandl said a soft Brexit approach, which may include a permanent customs union packaged with a second referendum, could come within the next day or two.

“Sterling is maybe the biggest opportunity among developed market exchange rates today,” Pandl said. The pound slipped 0.4% to $1.3050 as of 09:00 in London, at the weaker end of its recent range.

Parliament rejected a proposal to stay in the EU’s trading arrangement , known as the customs union, by just three votes.

It could potentially be voted on again Wednesday. Separately, Goldman has closed its short recommendation on the US dollar against the Japanese yen, Pandl said.

“We think we’ve seen enough data to indicate that the global industrial cycle at least on the margin is picking up,” Pandl said.

“It’s a little bit too risky to be betting on yen appreciation over the short run.” - Bloomberg

The rand is up 2.1% on better Chinese data and Moody's credit rating delay, says Corporate Treasury Manager at Peregrine Treasury Solutions's Bianca Botes.

By 09:21, the rand was trading at R14.23 to the greenback.

"The rand continued its rally after breaking key dollar support levels with relative ease, gaining 2.1%.The significant rise was largely assisted by improved Chinese manufacturing data and Moody's decision to delay its SA credit rating, keeping the country at investment grade.

"Markets are keeping a keen eye on global economic data as global growth concerns remain a threat. Although there is no local data due today, we will see EU PPI and US durable goods being released.

"The rand’s rally is likely to start losing some momentum although a sustained break below R14.20/$ would signal the next leg stronger.

"The technical intraday range for Tuesday is R14.16 to R14.32."

Asian stocks consolidate after rally

Andreea Papuc, Bloomberg

The global stock rally lost some steam on Tuesday in Asia, and Treasury yields edged lower, after notable moves Monday in the wake of better-than-expected American and Chinese manufacturing data.

Japanese shares reversed modest gains, while benchmarks were up slightly in Shanghai, Hong Kong and Seoul. Australia outperformed ahead of the government’s pre-election budget announcement.

US futures nudged lower after the S&P 500 Index closed little more than 2% from its record high.

Ten-year Treasury yields dipped after the biggest surge in three months Monday.

The pound slipped on the latest Brexit news while oil added to gains.

The market was “front-running” the Federal Reserve’s patience, Vishnu Varathan, head of economics and strategy at Mizuho Bank, said on Bloomberg TV. “At the margin it does provide relief,” he said. “But a lot of this is baked in and we are really running on fumes beyond this.”

The US ISM index for manufacturing rose from a two-year low Monday. That followed better than expected China manufacturing PMIs for March, assuaging growth concerns, though manufacturing data for Europe came in at the lowest since 2013.

Meanwhile, US-China trade talks will resume when Vice Premier Liu He leads a delegation to Washington later this week.

The Australian dollar declined and 10-year bond yields pared gains after a wording change in the Reserve Bank of Australia’s monetary policy setting was interpreted as signaling a shift toward an easing bias. The central bank left rates unchanged at its meeting Tuesday.

Elsewhere, the pound traded at the lower end of its recent range after the UK's deadlocked Parliament rejected all the options to replace Prime Minister Theresa May’s unpopular deal. Bitcoin jumped as much as 16% to its highest level since late November, according to Bloomberg composite pricing.