Markets WRAP: Rand closes at R14.4737/$

Here's how Monday wrapped up:

USDZAR 14.4737

EURUSD 1.1200

EURZAR 16.2025

GBPUSD 1.2635

GBPZAR 18.2784

AUDZAR 10.0615

CADZAR 10.7398

CNYZAR 2.0952

ZARJPY 7.4840

CHFZAR 14.4824

R186 8.42%

US 10 Year 2.12%

JSE 1.05%

FTSE 0.29%S&P 500 0.33%

Brought to you by TreasuryONE

OVERVIEW: US stocks fell and Treasuries climbed as traders digested the latest salvos in the US-China trade spat amid weak manufacturing data. The S&P 500 Index erased gains after data showed US manufacturing dropped to the lowest level in almost a decade. Losses in early trading were prompted by China’s retaliatory tariffs on Saturday to cover more than two-thirds of imports from the US.

FedEx Corp. slumped as investors assessed the impact of a Chinese probe. The yield on two-year Treasuries headed for its biggest two-day decline since January 2008, and JPMorgan Chase & Co said there’s more downside to come.

After a brutal month for most asset classes except bonds, June began with no let-up in geopolitical risks. China also warned its students in the US to be vigilant as the Trump administration steps up restrictions on academic visas. The Asian nation accused the American government of resorting to intimidation and coercion in the now-stalled trade negotiations.

"We’re in a phase of brinkmanship - it’ll be a difficult month," Rob Mumford, an emerging market portfolio manager at GAM Investments, said at a roundtable in Hong Kong. "We’re at the maximum pressure."

Meanwhile, President Donald Trump’s tariff moves against Mexico last week sparked a wave of forecast revisions. A global recession could start within nine months if the US imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley.

Separately, JPMorgan said the probability of a US recession in the second half of this year had risen to 40% from 25% a month ago. - Bloomberg

Oil rebounds after trade war rout as Saudis try to calm market

Tsuyoshi Inajima and Grant Smith, Bloomberg

Oil rose as Saudi Arabia offered reassurance that OPEC will keep global crude markets in balance after concerns over the US-China trade dispute triggered the steepest monthly slump this year.

Futures gained 1.7% in New York after another plunge on Friday concluded May’s 16% sell-off, which was driven by worries that the trade war will crimp fuel demand. Saudi Energy Minister Khalid Al-Falih said that recent volatility is "unwarranted" and reiterated his confidence that OPEC and its allies will keep taking action to stabilise the market beyond June.

The trade tensions mean oil has moved close to the edge of a bear market, having fallen about 18% from a high in late April. A tense situation in the Middle East hasn’t been enough to support prices.

There could be greater clarity this week on whether Russia will keep cooperating with Saudi Arabia on production cuts as ministers from the countries meet in St. Petersburg

"The market was overwhelmed by general bearish sentiment last week," said Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB. "Oil is not immune to global growth weakness but there is now a significant risk that the market is overselling.”

West Texas Intermediate crude for July rose 93 cents to $54.43 a barrel on the New York Mercantile Exchange at 8:21 am local time, after falling as much as $1.39 earlier. 

Andre Botha, Senior Dealer at TreasuryONE said the rand was in for a volatile week.

The rand was trading at R14.55 to the greenback by 11:04.

"The current narrative in the market apart from the trade war stories is the fact the market is imploring the Fed to cut rates in the medium term in order to avert the latest round of global growth concerns... 

"Furthermore, Trump has now got Mexico and India in his tariff sights. [This] has only reinforced the pessimistic outlook for global growth and it is only a matter of time before the recession debate hits the news wires. We have already seen a safe haven like Gold ramping up above the $1300 level on the back of the latest global growth concerns.

"The rand had a bit of a reprieve on Friday with the US dollar coming under pressure and [the currency] could continue to be under pressure should the calls for a cut in the US interest rate become louder. However, we expect a volatile week for the rand with major data releases out of the course of the week.

"We have the South African GDP number out tomorrow, which could confirm that there was a contraction in Quarter 1 in the South African economy. We also have the South African Current Account balance out on Thursday and the US non-farm payroll number out on Friday.

"All things considered, it could possibly be a dirt or champagne week for the rand with two-way risks [and] the rand could be below R14.5000 of near the R15.0000 level by weeks end."

Asian stocks extend slide, oil slumps on trade-war angst

Adam Haigh, Bloomberg

Asian stocks were mostly lower in the wake of trade-war jitters from the US tariffs looming against Mexico and China’s retaliation against American measures.

US and European stock futures slumped and most companies in the MSCI Asia Pacific Index were down. Declines in Japan left benchmarks closer to wiping out their gains for 2019, while shares in Shanghai and Hong Kong saw more modest declines. South Korean and Indian equities rose.

Ten-year Treasury yields hit fresh 21-month lows, with JPMorgan Chase & Co. saying there’s more downside to come. Oil extended the rout from May, when West Texas Intermediate tumbled 16% thanks to global demand worries.

“Trade is a tail risk that’s becoming bigger by the day,” Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, told Bloomberg TV in Sydney. “Investors right now are looking more at capital preservation before stepping into buy.”

May marked a brutal month for just about every asset class except bonds, with money managers seeking out the relative safety of Treasuries. And June began with China implementing retaliatory tariff hikes on Saturday.

Chinese officials are also planning action against “unreliable” foreign companies, with a list of violators pending. Meantime, President Donald Trump’s tariff moves against Mexico triggered a wave of forecast revisions among economists and strategists.

Traders are betting the Fed will cut its target rate by a half-percentage point by year-end, an outlook now matched by forecasts at JPMorgan and Natwest Markets. Morgan Stanley sees a recession in as soon as nine months if Trump puts 25% tariffs on the remainder of Chinese imports and China retaliates.