Markets WRAP: Rand closes at R13.88/$, averages between R13.73 and R13.90

Oil slumped to the lowest in a year after Saudi Arabia signaled its output may have reached a record high and growing US stockpiles stoked concerns over a potential supply glut. New York futures dropped 5.3% from their Wednesday settlement price in a trading session lengthened by the Thanksgiving holiday in the US, set for a seventh weekly decline.

Traders are focused on the growing risks of a new glut of crude: Saudi Arabia’s oil minister said Thursday production from the world’s largest exporter climbed further this month after a surge in October, and US stockpiles have risen for nine straight weeks. The Saudis have signaled they will throttle back production in December, but unless OPEC and Russia can reach a new deal to constrain supply at their meeting next month, analysts see the prospect of sustained oversupply in 2019, undoing the group’s success over the last two years to drain global inventories.

Crude collapsed into a bear market this month after the US allowed some nations to continue buying Iranian crude. Trade tension between America and China is raising concerns over demand and President Donald Trump has renewed his call on Saudi Arabia to lower prices further. These factors pushed up oil’s volatility this week to the highest since 2016.

“Prices have taken a dive as Trump continues to put pressure on OPEC and Saudi Arabia to create a low-price environment, and that has coupled with increasing American stockpiles,” said Hong Sungki, a Seoul-based commodities trader at NH Investment & Securities.

“A potential game-changer will be what OPEC+ agrees to do in terms of supply.”

West Texas Intermediate for January delivery lost as much as $2.90 to $51.73 a barrel on the New York Mercantile Exchange, and was at $52.28 at 11:47am in London. The contract is on course for a 7.4% decline this week, the longest weekly stretch of drops since August. There was no settlement on Thursday due to the US Thanksgiving holiday.

Brent for January settlement fell $1.57, or 2.5%, to $61.03 a barrel on the London-based ICE Futures Europe exchange. The contract headed for a seventh weekly drop, with a 9.2% loss. The global benchmark crude traded at a $8.75 premium to WTI. Total volume traded was 43% above the 100-day average. Earlier this month, the Organisation of Petroleum Exporting Countries and allied producers warned that markets will probably be oversupplied in 2019.

US stockpiles expanded to the highest level since December 2017 last week and oil producers there are producing at the highest rate since at least March 1983, according to government data. While indicating that Saudi Arabia is producing at record levels, Al-Falih said the world’s biggest exporter won’t oversupply the market. Demand for Saudi crude may be lower in January compared with December, he told reporters on Thursday. - Bloomberg

Traders who braved the rout in emerging markets in search of higher returns are suddenly reaping the rewards. A Bloomberg currency index that measures carry-trade returns from eight emerging markets funded by short positions in the dollar has gained 3.2% in November so far. If it stays that way, it will be the best month since January. Carry trades were upended earlier this year as the dollar strengthened and concerns over a protracted trade war rattled markets.

But now the slide in the price of oil and growing speculation that the Federal Reserve may slow the pace of interest-rate increases next year have rekindled investor interest in the most beaten-down assets. “Some of the superb carries are looking increasingly attractive on this subtle shift in Fed narrative alone,” said Stephen Innes, head of trading for Asia-Pacific at Oanda in Singapore.

It “brings back some yield appeal to the beleaguered EM carry trade. ”The South African rand, Turkish lira, Indonesian rupiah and Indian rupee - among this year’s hardest-hit currencies through September - have led the advance this month. Chile’s peso is also among the biggest gainers, though it isn’t included in Bloomberg’s carry-trade index.

There’s still a potential black spot on the horizon, should President Donald Trump fail to cut a trade deal with China at the Group of 20 summit in Argentina next week.

“Asian currencies could react negatively if US talks with China were to break down,” said Maximillian Lin, an emerging-markets strategist at NatWest in Singapore.

The rand was changing hands at R13.86 to the greenback by 12:53. - Bloomberg

OVERVIEW: European stocks climbed while US equity futures pointed to a weaker open and Asian benchmarks declined. Oil dropped on signs of oversupply, heading for a seventh weekly loss. Banks and technology companies led gains in the Stoxx Europe 600 Index, while contracts on the Dow, S&P and Nasdaq all pointed lower, with markets set to reopen following the Thanksgiving holiday.

Chinese equities led regional declines in Asia, with the technology sector weak on concern the US is ratcheting up a campaign against Huawei. The dollar climbed and the euro reversed earlier gains as data showed German’s growth outlook weakened. The pound handed back some of Thursday’s gains after Spain said it may vote against the Brexit plan.

Falling energy prices are just one of several indicators that concern investors about the strength of global economic growth. Meanwhile, political turmoil in Europe, lingering uncertainty over a Brexit agreement and a trade war that’s engulfed the world’s biggest economies add to nervousness. - Bloomberg

Andre Botha, Senior Currency Dealer at TreasuryONE said in a morning note to clients, "The rand enjoyed a bit of a thanksgiving of its own from the US yesterday, as the thin liquidity conditions from the US being out of the market yesterday, helped the rand lower when the MPC hiked the interest rate by 25 basis points. Although the race to hike or not was a tight one, the market moves in the past couple of days proved that the market thought that there was a rate hike coming.

"The reason that was given by the Reserve Bank Governor for the first rate hike in 3 years was that the Reserve Bank was concerned about inflation and would rather do a preemptive hike than trying to play catch up later. The rand strengthened to the 13.7200 level after the announcement and it will be interesting to see if the move is sustained when liquidity returns to the market.

"Another possible market disruptor yesterday could have been the cabinet reshuffle that was announced by President Ramaphosa yesterday. This cabinet reshuffle hardly had the impact of previous cabinet reshuffles as there were only two reshuffles and an amalgamation of two portfolios. This event was treated as a non-event in the rand as the interest rate hike was the main market mover.

"Internationally with the US being out of action yesterday, we saw the pound being rejuvenated after the EU and the UK came to an agreement in text. There are still a few hoops to jump through but there is a feeling that Brexit is turning the corner. However, we expect the pound to still be on a rollercoaster in the short term.”

Rand holds onto gains in early trade 

"The rand has held on to yesterday’s gains and is trading at 13.7700 as the market reacts positively to yesterday’s rate hike. The prospect of further hikes in 2019 going into 2020 has further buoyed investor sentiment.

The rand was further helped by a stronger Euro and Pound as the UK and EU reached a draft agreement on Brexit. President Ramaphosa's Cabinet reshuffle had little impact on the local market.

US markets were closed yesterday but equity futures have opened down as stocks in Asia are lower this morning. Gold is firmer at $1228.50 while Brent has slipped to $62.00."

- TreasuryONE

Confused about Brexit? Here's a guide to the endgame

Here are the five things to know as we head into the most perilous part.

1. What’s the deal?

It’s the most important international agreement in Britain’s post-war history. It sets out the terms of separation that allow the UK to depart the European Union on March 29 in an orderly fashion – and brings with it a 21-month grace period to give everyone time to adjust.

Alongside it is a political declaration that sets out that the two sides want how the two sides want to trade in the future – but the details of a free-trade agreement could take years to work out.

Asia stocks drop; pound holds gain on Brexit deal

Asian stocks were mostly weaker on low volumes, rounding out a third week of losses on a note of caution. The pound kept its gains following a breakthrough over the Brexit deal between the UK and EU.

Chinese equities led regional declines, with stocks also falling in Hong Kong, Malaysia and South Korea, while Australian shares outperformed.

US equity futures indicated declines when trading begins in New York following the Thanksgiving break. Volumes were lower than average in most markets as the week ends with Japan and India shut for holidays, and Treasuries won’t start trading until the London open.

China’s yuan slipped amid speculation policy will need to be eased further in 2019 as the economy slows.

S&P to announce ratings action for South Africa's sovereign debt

"S&P is expected to publish its credit rating review for South Africa after the close of local trade. We expect that S&P will maintain its current sovereign ratings for South Africa, given that S&P has already downgraded South Africa’s local (one notch below investment grade) and foreign currency (two notches below investment grade) sovereign ratings to sub-investment grade in 2017.

Except for moderate fiscal slippage evident in the 2018 Medium-Term Budget Policy Statement and a disappointing growth outcome in 2018, some progress has been made relating to governance issues at state-owned enterprises and structural reform, which should support the view of an unchanged stance at this ratings review."

- NKC African Economics