Markets WRAP: Rand closes at R14.44/$

The rand closed at R14.44 to the greenback on Tuesday afternoon.

The day's range was between R14.39 and R14.51.

TreasuryONE's Andre Botha said earlier that the rand was likely to be in choppy waters as markets position themselves ahead of Wednesday's election.

OVERVIEW: Losses in US stocks accelerated as investors remained on edge over President Donald Trump’s threat to increase tariffs on billions of dollars of imports from China. Oil tumbled.

The S&P 500 Index retreated for a second day, with all 11 industry sectors negative, amid speculation that the imposition of fresh levies would upend the global economy. China’s top trade negotiator still intends to visit Washington later this week as Trump ratchets up pressure to clinch a deal that many market participants had expected was all but done.

The Stoxx Europe 600 Index touched a five-week low. Korean and Japanese shares slid as both markets reopened after holidays, though stocks in Shanghai and Hong Kong climbed.

“Even though we got some good news overnight (that the top China trade negotiator will join the team visiting the US this week for the negotiations), the odds are higher than they were a few days ago that we’ll see an increase in the tariffs on China,” Matt Maley, equity strategist at Miller Tabak + Co, wrote in an email to clients.

“Therefore a pause is in order right now.” The euro turned weaker after the European Commission slashed its growth forecasts for the euro area and warned that escalating trade tensions could worsen the outlook. Bonds in the region rose.

Oil dropped as Saudi Arabia was said to give extra crude supplies to its customers in Asia. Investor sentiment remains fragile as traders wait for the next development in the trade dispute between the world’s two biggest economies. China’s government confirmed Tuesday that Vice Premier Liu He would visit the the US for trade talks on May 9 and 10. At the same time, the country was said to be preparing retaliatory tariffs on American imports should Trump carry out his threat of further duties. The latest twist sets up Thursday as a potentially key moment in the year-long trade war. Elsewhere, Turkey’s lira and stocks slumped as investors interpreted a decision to redo Istanbul’s municipal vote as yet another manifestation of President Recep Tayyip Erdogan’s influence over independent institutions.

The Australian dollar strengthened after the country’s central bank refrained from cutting rates.

These are the main moves in markets:

Stocks

The S&P 500 Index fell 1.2% as of 10:23 New York time, while the Nasdaq Composite Index dropped 1.2% and the Dow Jones Industrial Average slumped 1.1%. The Stoxx Europe 600 fell 1.3%. The MSCI Emerging Market Index dropped 0.6%. The MSCI Asia Pacific Index slumped 0.3%. 

Currencies

The Bloomberg Dollar Spot Index gained 0.2%. The euro fell 0.1% to $1.1188 while the yen strengthened 0.3% to 110.43 per dollar. The British pound weakened 0.3% to $1.3058. The MSCI Emerging Markets Currency Index eased 0.2%. 

Bonds

The yield on 10-year Treasuries was little changed at 2.47%. Germany’s 10-year yield fell four basis points to negative 0.04%. 

Commodities

West Texas Intermediate fell 2.1% to $60.96 a barrel, touching the lowest level in more than five weeks. Gold was little changed at $1,283 an ounce. The Bloomberg Commodity Index fell 0.8%, touching the lowest level in about four months. - Bloomberg

International Monetary Fund Managing Director Christine Lagarde issued a fresh warning about the threat trade tensions pose for the world economy and said it may take time for the US and China to resolve their issues.

The comments came two days after tweets by US President Donald Trump's warning of new tariffs on China, marking an escalation of hostilities amid talks aimed at brokering a solution between the two nations.

The US also accused China of backpedaling on commitments made during the negotiations.

“We thought this threat was waning and relations were improving and we were moving toward an agreement,” Lagarde said in Paris. “We hope that is still the case but today rumours, tweets and comments are not very favorable.”

Speaking later in an interview with Bloomberg TV in Paris, Lagarde said there may not be a quick resolution as both sides must tackle “very important issues.

"Takes Time"

All the observers would like it to be done yesterday, but those matters actually take time,” Lagarde said. China’s top trade negotiator, Liu He, still plans to visit the US this week for trade talks. Trump has said he intends to raise tariffs on $200 billion of Chinese goods to 25% from 10% and may also impose duties “shortly” on $325 billion of Chinese goods that aren’t currently covered.

“It is imperative for trade tensions to be resolved in a satisfactory way for everyone,” Lagarde said. “Today, clearly the tensions between the US and China are a threat for the global economy.” - Bloomberg

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions said the rand has been fairly flat during local trade, while the bigger movements are taking place in the overnight trade.

By 11:50, the rand was trading at R14.46 to the greenback.

"The rand starts today at R14.45/$ after reaching a low of R14.57 in the overnight session. Although the local general election is already underway, with special votes being cast and the main voting day tomorrow, markets are adopting a wait-and-see stance with little movement in the local unit being driven by SA politics.

"Markets are also keeping an eye on the US and China hoping that the two nations will indeed reach an agreement on Friday.

"We have a very light data calendar today, with the EU releasing economic forecasts while JOLTS job openings are due from the US," she said.

Botes said the expected range for the day was R14.42 to R14.58.

Andre Botha, Senior Dealer at TreasuryONE said with only one day away from the national election, the rand was expected to stay with the rand expected to stay in a tight range with the R14.50 handle.

By 09:20, the rand was changing hands at R14.47 to the greenback.

"We expect the fallout from the election to take a short amount of time to happen as the election results will be known over the weekend. For the most part, we expect the rand to stay within tight ranges with headline risk still in evidence on the local front.

"On the international front, the Trump tweet rally subsided a little with the US dollar losing a bit of ground from yesterday and equity markets returning to normal after the sharp sell-off we saw yesterday. 

"For the rand, at the moment we are looking at pressures from two sides with the upcoming election and the US-China trade spat, which is turning into a soap opera at the moment, with China officials meeting with their US counterparts on Thursday despite the threat of tariffs that will be imposed on Friday.

"The currency uncertainty strengthens our view at least in the short term that the rand could trade sideways heading into the elections.”

Asian stocks pare losses on trade talks

Andreea Papuc, Bloomberg

Stocks in Asia pared losses Tuesday as investors assessed the re-escalating trade war amid confirmation China’s vice premier would attend talks this week.

US Treasury yields ticked higher and the dollar steadied.

Korean and Japanese shares slid as both markets came back online after holidays, while stocks in China and Hong Kong fluctuated.

European and US futures pointed lower, while the yuan dipped. News that Vice Premier Liu He would still visit the US helped pare losses.

Australian shares trimmed gains and the Aussie climbed after the central bank did not cut rates as some analysts had expected. The pound ticked higher.

Earlier, Treasuries had risen after President Donald Trump’s top trade negotiator said Washington plans to proceed with a tariff hike on Chinese goods on Friday.

Indications that China would still send a delegation to Washington this week had helped temper declines on Wall Street, with the S&P 500 Index closing off of its lows of the session Monday.

Investor sentiment remained fragile as traders waited for the next development in the trade negotiations.

Talks with Chinese officials will take place Thursday and Friday, US Trade Representative Robert Lighthizer told reporters Monday.

At the same time, the Trump administration plans to increase duties on Chinese imports at on Friday, he said.

The US and China had been making substantial progress on a trade deal, but in the past week China reneged on some of its promises, Lighthizer said.

Significant issues remain unresolved, including whether tariffs will remain in place, he added.

“Reality is setting in that they are not going to get the master deal, the grand deal that they are hoping for and there’s a lot of work to be done,” Oliver Pursche, Bruderman Asset Management’s chief market strategist, told Bloomberg TV. “Our best guess is that these tariffs will be implemented on Friday, but will then be reversed relatively quickly.’’

Elsewhere, the lira slumped after Turkey ordered a re-run of mayoral elections in Istanbul, overturning a rare defeat for President Recep Tayyip Erdogan. Oil extended an advance as the Trump administration dispatched warships to the Middle East in a warning to Iran.

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