Markets WRAP: Rand closes at R14.68/$

The rand closed at R14.68 to the greenback on Tuesday afternoon.

The day's range was between R14.40 and R14.74.

TreasuryONE said previously that the rand was in for a volatile week.

Expect a volatile day ahead, warns a note from TreasuryONE. 

"As the US market starts to open, the USDZAR is feeling the pressure," read a note to clients on Tuesday afternoon SA time. "The bad local data has really driven the currency today, and as the USD is also regaining some of its losses from yesterday, the USDZAR is now trading back up at R14.70 from R14.43 at the open this morning. 

"For now we can expect the currency to remain volatile as the market digests the GDP number, and how SA can [dig itself] out of this situation." 

OVERVIEW: US equity futures climbed and stocks in Europe reversed earlier losses as investors tried to shrug off negative sentiment following Monday’s rout in technology shares. Treasuries dropped for the first time in a week and the dollar steadied. Futures on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 all extended gains as Mexico’s foreign minister struck a conciliatory tone on trade and immigration, helping boost risk appetite after the tech selloff.

The Stoxx Europe 600 Index also rose as gains in banks and Italian equities helped offset declines posted by tech shares. Benchmarks in Asia were mixed. Treasuries slumped, set to end a one-week rally that was driven by speculation the Federal Reserve will cut interest rates.

The euro held a small advance after regional inflation data fell slightly short of expectations. The pound recovered from an earlier dip when data showed UK retail sales in May declined by the most on record.

South Africa’s rand fell by more than 1% after the country posted the biggest first-quarter GDP contraction since 2009.

Investors are attempting to find their feet after the threat of antitrust probes into some of the biggest US tech companies heaped pain onto already fragile markets on Monday, triggering a rout in names like Facebook and Amazon.com.

A week chock-full of major economic indicators also got off to a troubled start, with a measure of American manufacturing activity falling in May to the lowest level of Donald Trump’s presidency. Bank of America and Citigroup have lowered their US corporate profit forecasts while pointing out the risk of a recession amid a trade war.

The comments from Mexican Foreign Minister Marcelo Ebrard offered some relief on that front. He said the most likely scenario is for Mexico to negotiate a solution on migration to avoid the imposition of US tariffs on the nation’s imports.

Elsewhere, oil fell and hovered at the edge of a bear market after the Wall Street banks raised the specter of a recession, while Saudi Arabia tried to assure investors that OPEC will avert a supply glut. Emerging-market stocks dropped, heading for their first decline in four sessions. Bitcoin was on track for its largest retreat in more than two weeks.

These are the main moves in markets:

Stocks

The Stoxx Europe 600 Index rose 0.3% as of 07:57 New York time. Futures on the S&P 500 Index increased 0.6%, the biggest climb in almost two weeks. Italy’s FTSE MIB Index rose 1.2%, the largest advance in more than a week. The MSCI Emerging Market Index declined 0.5%, the biggest drop in more than a week. 

Currencies

The Bloomberg Dollar Spot Index increased less than 0.05%. The euro increased 0.1% to $1.1253, the strongest in six weeks. The British pound gained 0.1%, the strongest in more than a week. The Japanese yen fell less than 0.05%. The Mexican peso climbed 0.4% to 19.6943 per dollar. 

Bonds

The yield on two-year Treasuries climbed five basis points to 1.89%, the first advance in more than a week. The yield on 10-year Treasuries climbed four basis points to 2.11% and the largest surge in more than a month. Germany’s 10-year yield fell two basis points to -0.22%. Italy’s 10-year yield dipped five basis points to 2.515%. 

Commodities

Gold decreased 0.1% to $1,323.48 an ounce. Brent crude dipped 1.2% to $60.54 a barrel, hitting the lowest in more than four months. The Bloomberg Commodity Index fell 0.1%. - Bloomberg

Corporate Treasury Manager at Peregrine Treasury Solutions said the rand depreciated by almost 1% against the USD, touching R14.60 within minutes of the GDP announcement.

"At -3.2%, quarter-on-quarter, seasonally adjusted and annualised, the first quarter GDP figure has come in far worse than the expected -1.6%, with manufacturing being one of the biggest contributors to the drop, falling by 8.8%.

"This is the biggest decline in GDP since the 2008 financial crises, highlighting the dire state of the South African economy. The drop in GDP can largely be attributed to load shedding, low wage growth and higher income tax."

South Africa's Q1 GDP contracted the most since 2009, coming out at -3.2%. The expectation from most analysts was a contraction of -1.7%. The rand did not like the number and "quickly shot up" to the R14.60s, TreasuryONE said in a snap comment. It has since come back to trade at the R14.55 level. By 11:45, the rand was trading at R14.59. 

Andre Botha, Senior Dealer at TreasuryONE said in a morning note that the rand was enjoying the slip in the dollar.

By 10:53, the rand was changing hands at R14.43 to the greenback.

"The story at the moment is the US dollar that is currently looking like it's on a slippery slope against most currencies. The US dollar index is at 3-week lows as global growth fears and struggling yields from the Treasury notes and the inversion of the 3M-10 yield curve are weighing in on the US dollar.

"Furthermore, there have been signals from the Fed that they have been thinking of cutting rates with a Fed member stating yesterday that an interest rate cut could be warranted with the rise in trade tensions and lack of inflation. In the commodity space, the run to safe havens due to fear of global growth has been plain to see with Gold almost $50 up from last week and Oil trading at $60 per barrel level. 

"On the South African front, we have the local GDP number out later this morning and the expectation is that the GDP will contract by -1.6% q/q but any number greater than this could see the rand giving up some of its gains against the US dollar.

"Looking ahead to the week, the rollercoaster for the rand is not over, with Current Account data and the US non-farm payroll number still to be released later on.

"Today the rand is enjoying the slip in US dollar but there are two-way risks for the rand in the form of the GDP print. The bias is for the number to disappoint and the rand to lose a bit of ground."

Asian stocks mixed as headwinds persist

Andreea Papuc, Bloomberg

Stocks fluctuated in Asia Tuesday with US futures after a technology rout sank Nasdaq shares overnight. Treasuries came off their highs after yields dived on growing conviction the Federal Reserve will cut interest rates. Equity benchmarks edged down in China and Hong Kong and were little changed in Japan and South Korea.

Australian shares edged higher and the Aussie dollar fluctuated after the central bank cut interest rates to a record low as expected.

US futures ticked higher and European futures declined. Ten-year Treasury yields climbed. Two-year US yields earlier dropped to their lowest since 2017 after St. Louis Fed President James Bullard said the central bank may need to lower rates soon amid the trade war.

There was no let-up in negativity as June began, after a brutal May that saw the value of most risk assets depleted. The latest signs of factory weakness in major economies weighed on investor sentiment already frayed by a worsening trade war.

A measure of American manufacturing activity fell in May to the lowest since October 2016. Bank of America and Citigroup have lowered their US corporate profit forecasts while pointing out the risk of a recession amid a trade war.

In the US, selling was heaviest in the likes of Facebook, Amazon.com, Alphabet and Apple. Those companies appeared set to undergo antitrust probes after the US Justice Department and the Federal Trade Commission agreed to split up oversight of technology giants.

The Nasdaq 100 Index tumbled more than 2% Monday.

Elsewhere, oil hovered on the edge of a bear market as Wall Street banks raised the spectre of a recession, while Saudi Arabia tried to assure investors that OPEC will avert a supply glut.

PIC forced board shakeup at MTN in push for fewer disputes

MTN Group’s biggest shareholder is pushing for changes at Africa’s largest mobile-phone company to avoid the regulatory, legal and political disputes that have cut its share price by more than half over the past four years.

The Public Investment Corporation built a 26% stake in Johannesburg-based MTN by late November and used that to call for the replacement of Chairman Phuthuma Nhleko, people familiar with the matter said. Africa’s biggest fund manager, which is South African state-owned, also sent a letter to MTN demanding a board reorganisation, said one of the people. That resulted in the appointment of more politically connected directors.