Markets WRAP: Rand closes at R13.96/$

The rand closed at R13.96 to the greenback on Wednesday afternoon.

The day's range was between R13.91 and R14.09.

TreasuryONE's Andre Botha said earlier that EM currencies were largely on the front foot.

"This goes against the notion that a negative view of global growth is bad for Emerging Markets," he said. This after the IMF on Tuesday lowered SA's growth projection for 2019.

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions said the rand gained about 0.9% against the dollar on Wednesday to break below R14.00/$.

"It has been driven mostly by the positive emerging market backdrop but also in anticipation of the release of the FOMC minutes tonight. There is no interest rate announcement, but the market is expecting the Fed to hold quite a dovish stance.

"All indications show that there is a slowdown in the American economy and the fear of recession is weighing quite heavily on the Fed at the moment. 

"A dovish stance in tonight’s minutes could lead to some solid rand strength.

"Currently we’re looking for enough momentum to break through the R13.95/$ mark to confirm the leg stronger to the R13.80 level."

President Donald Trump is sending a clear message to the economic policy makers gathering in Washington for the IMF and World Bank’s spring meetings: My trade wars aren’t finished yet and a weakening global economy will just have to deal with it.

With his latest threat to impose tariffs on $11 billion in imports from the European Union - from helicopters to Roquefort cheese - the US president offered a vivid reminder that, even as he moves toward a deal with China to end their tariff wars, he has other relationships he’s eager to rewrite.

That’s not encouraging for global growth, with the International Monetary Fund and others pointing to the uncertainty over Trump’s assault on the global trading system as a damper on business investment and sentiment. Should they materialise, the new tariffs will be in retaliation for what the US has long claimed are illegal subsidies to Airbus SE and cap a 14-year fight between Boeing and its European rival at the World Trade Organisation.

Importantly, the US has said it will wait for the WTO, which has already deemed the subsidies illegal, to rule this summer on the exact amount of retaliation allowed. That is potentially good news for the WTO and the broader system Trump has often said he wants to blow up. The Airbus-Boeing fight also predates Trump and it’s fair to say any US administration would be willing to use WTO-sanctioned retaliatory tariffs.

“It’s a good sign,” Simon Lester, an associate director at the Washington-based Cato Institute, said in an interview. The Trump administration has been “sending some mixed signals about the World Trade Organisation, but this action suggests they still value playing by the rules.” But Trump has deeper issues with the EU. And that’s the problem hanging over the global economy, which the IMF predicts will grow this year at its slowest rate since the aftermath of the global financial crisis a decade earlier.

“The EU has taken advantage of the US on trade for many years. It will soon stop!’’ Trump said on Twitter on Tuesday. The two sides have kept a fragile truce since July when Jean-Claude Juncker, the European Commission president, and Trump agreed to launch talks on reducing industrial tariffs. The move put on hold Trump’s threat to impose separate tariffs on imports of cars and parts from the EU. But the negotiations have yet to get underway in earnest with the EU’s 28 members only expected to give the European Commission the mandate it needs to begin talks in the coming days and casting a wary eye on European elections due next month.

Moreover, Trump faces a decision in May on how he wants to proceed with the auto tariffs, though White House officials have been telling their European counterparts that there is a high chance that the duties could be delayed.

“It’s very unfortunate that the US, once the great advocate and architect of global alliances, seems today to be moving in a different direction,” EU trade chief Cecilia Malmstrom said in a speech in Tokyo after the latest tariff threat by Washington.

“We see a broad withdrawal from multilateralism by the U.S.”

Firing Line

The EU isn’t the only one in Trump’s firing line, of course. US and Chinese officials are continuing their talks aimed at closing a deal within the next month. Next week, a Japanese delegation is due in Washington to begin negotiations over a bilateral deal with the US that American companies and farmers are clamoring for to make up for Trump’s decision to pull out of the Trans-Pacific Partnership. The threat of auto tariffs that could batter Japan’s economy has forced Tokyo back to the negotiation table.

Their chief point man on trade, Toshimitsu Motegi has insisted that any deal must be mutually beneficial, suggesting that Japan won’t easily cave in. It’s unclear what the scope of the talks will be, after an agreement between Prime Minister Shinzo Abe and Trump in September referred to both goods and services. Canada and Mexico are continuing to push for the US to lift steel and aluminium tariffs imposed on them as all three countries work to have their legislatures ratify Trump’s replacement for Nafta. India is also threatening tariffs on US apples and other products in retaliation for Trump’s threat to kick the South Asian country out of a preferential trade scheme for developing nations.

“We’re still in the same tariff world that we were last year,” said Wendy Cutler, a former senior US trade negotiator now at the Asia Society. That still carries risks and lots of uncertainty, though Trump has been able to use tariffs to force the EU, Japan and other trading partners into negotiations, Cutler said.

“The question is at what point does it backfire. At what point do countries just say enough is enough?” - Bloomberg

Rand firms, breaks below key R14/$ mark

The rand broke below the key R14/$ mark on Wednesday.By 10:40, the rand was trading at R13.98 to the greenback.

The local currency has been making gains since last week, several market analysts have noted.

The settling of contagion risks from Turkey and the settling of local angst after Moody's granted the country a reprieve on its credit rating, as well as Eskom's management and government providing more clarity on the electricity crisis – the week before - have provided a foundation for the rand's strengthening trend.

Andre Botha, Senior Dealer at TreasuryONE said the rand is currently on the front foot and looks set to push through the key R14.00 handle against the US dollar.

This was in spite of the International Monetary Fund lowering global growth for 2019. By 10:04, the rand was trading at R14.03 to the greenback.

"This goes against the notion that a negative view of global growth is bad for Emerging Markets. We have seen gold trading higher on the news as there was some move to safe-haven currencies, which suggest that an EM correction is maybe lagging and the next move for the rand could be higher. 

"Today we have some events and data that could support the rand in the short term, with the US CPI, ECB interest rate decision and the minutes of the last FOMC meeting by the Fed out.

"Dovish comments from both the Fed and the ECB and a bad CPI print could inject short term good news for EM currencies but with global growth being the overriding story, we could see EM currencies losing some ground in the medium term.” 

Asian stocks drop on growth woes

Adam Haigh, Bloomberg

Asian stocks declined on renewed concern about a global economic slowdown and an escalation in trade tensions.

Ten-year Treasury yields edged back below 2.50%.

Shares in Japan bore the brunt of losses, with equities seeing more modest declines in Hong Kong and Shanghai.

The S&P 500 Index fell for the first time in nine sessions as the Trump administration threatened tariffs on the European Union and the International Monetary Fund cut its global growth outlook to the lowest since the financial crisis.

Australian bond yields slipped while China’s benchmark yield rose to the highest this year. The pound fluctuated as the European Union looked set to force the UK to delay Brexit for as long as a year.

Sentiment remains fragile, with the IMF’s latest report on global growth highlighting fear about a slowing world economy that has plagued markets for months.

The US and the EU appeared to open another front in their trade war, while negotiations with China remain unsettled.

Federal Reserve minutes, American inflation data and a European Central Bank decision later this week could add to anxieties or help provide calm.

“It’s quite a tricky environment because clearly the economy isn’t in great shape,” Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management, told Bloomberg TV in Hong Kong. “Central banks going into easing mode, the Fed pivot - that would not be happening if the economy was firing on all cylinders. At the same time, recession risks are overdone.”

Elsewhere, Saudi Aramco, the world’s largest oil company, received more than $100 billion in orders for its debut bond sale, kick-starting an offering with yields likely to fall in line with or below Saudi Arabia’s sovereign debt.

Oil steadied as Russian President Vladimir Putin signaled caution on more output cuts.

Uber is said to seek about $10 billion in year's biggest IPO

Investors could get their first look at hundreds of pages of detailed information about Uber Technologies as soon as Thursday, as the ride-hailing giant gears up to publicly file for an initial public offering.

The global ride-hailing company will kick off a road show to market shares to potential investors this month and would begin trading publicly in May, said people familiar with the matter, who asked not to be identified because the information is private.

Uber is seeking to raise about $10bn, one of the people said.The offering is expected to be the largest U.S. IPO this year and among the 10 largest of all time.