Markets WRAP: Rand closes at R14.16/$

The rand closed at R14.16/$ on Tuesday. 

Here's how the end of the day looked.

USDZAR 14.1692

EURUSD 1.1206

EURZAR 15.8700

GBPUSD 1.2463

GBPZAR 17.6571

AUDZAR 9.8087

CADZAR 10.7861

CNYZAR 2.0547

ZARJPY 7.6708

CHFZAR 14.2533

R186 8.11%

US 10 Year 2.05%

JSE -1.37%

FTSE -0.21%

S&P 500 -0.09%

Brought to you by TreasuryONE

OVERVIEW: US stock futures and European shares retreated alongside Asian equities as markets extended a downbeat start to the week. The dollar strengthened for a third day. S&P 500 futures pointed to a third session of declines as investors await more clues on the path for US monetary policy.

Auto and chemical makers led the Stoxx Europe 600 Index lower after BASF issued a profit warning, slashing its forecast for 2019 “mainly due to the trade conflicts”. Stocks reversed gains in Japan, fluctuated in South Korea and saw modest slides in Hong Kong and China.

Trading may continue to be choppy ahead of key testimony this week from Federal Reserve Chairman Jerome Powell as investors assess prospects for easing following conflicting signals on the global economy. Treasuries declined, while gold and the yen both dropped for a fourth day.

Italian bonds bucked the trend, rising as the country took advantage of low borrowing costs to sell more debt.

Investors across both stocks and bonds are struggling to find fresh reasons to chase this year’s rally. An interest rate cut by the Fed this month is already priced and recent economic data has been mixed, making the path for future policy less clear. All eyes will be on Powell’s testimony for new clues to the Fed’s outlook.

“Market pricing still looks confidently for a 25 basis-point cut at the end of the month, but short-term positioning suggests a bias to look for a slightly less dovish take from Mr. Powell,” Kit Juckes, a strategist at Societe Generale SA, wrote in a note. “The debate isn’t about whether rates are cut once, but about what happens later in the year.”Elsewhere, WTI oil turned higher after an earlier fall as traders weighed geopolitical tensions with a slowing global economy.

Bitcoin held onto Monday’s 11% jump, and Australia’s dollar fell for a fourth session after private gauges of business and consumer confidence declined. The pound weakened as economists predicted the U.K. economy likely shrank for the first time since 2012 in the second quarter. Hong Kong’s dollar dipped as the city’s leader Carrie Lam said a controversial bill that would allow extraditions to China was “dead,” but stopped short of saying she’d withdraw the legislation after weeks of protests.

Here are the main moves in markets:

Stocks

Futures on the S&P 500 Index dipped 0.4% as of 07:22 New York time, the lowest in more than a week.The Stoxx Europe 600 Index sank 0.5%, the lowest in more than a week. The UK’s FTSE 100 Index decreased less than 0.05%, the lowest in more than a week. Germany’s DAX Index dipped 0.9%, the biggest decrease in more than five weeks.The MSCI Emerging Market Index fell 0.4%, the lowest in almost three weeks.The MSCI Asia Pacific Index declined 0.4%, the lowest in almost three weeks.

Currencies

The British pound declined 0.5% to $1.2457, the weakest in more than two years. The euro dipped 0.1% to $1.1202, the weakest in three weeks. The Japanese yen weakened 0.1% to 108.82 per dollar, the weakest in almost six weeks. The Australian dollar fell 0.6% to 0.693 per dollar, the weakest in more than two weeks.

Bonds

The yield on 10-year Treasuries gained one basis point to 2.06%, the highest in three weeks.Germany’s 10-year yield increased less than one basis point to -0.36%, the highest in more than a week. Britain’s 10-year yield climbed less than one basis point to 0.717%. Italy’s 10-year yield rose 173 basis points to 1.732%, the biggest advance on record.

Commodities

West Texas Intermediate crude increased 0.5% to $57.97 a barrel, the highest in more than a week.Gold decreased 0.4% to $1,390.05 an ounce, the weakest in more than a week.Iron ore gained 3.9% to $116.75 per metric ton. - Bloomberg

The pound was within touching distance of a two-year low as signs of economic downturn mounted in a market increasingly betting that policy makers will have to cut borrowing costs. The currency approached its weakest level since April 2017 as disappointing retail sales and suggestions that the UK economy could be set for its worst quarter since 2012 sapped sentiment.

The bleak economic outlook is adding to risk factors for sterling, with money markets pricing in a rate cut by the Bank of England next year.

The pound has been hobbled in recent weeks by concern about the UK’s political risk as the contest to elect the next prime minister approaches its endpoint, with front-runner Boris Johnson keeping a no-deal Brexit on the table. The pound has fallen about 2% since Prime Minister Theresa May indicated that she would be stepping down.

“A general pound malaise has taken us through the lows from Friday,” said Jeremy Stretch, head of G-10 currency strategy at Canadian Imperial Bank of Commerce. “It looks increasingly probable that second-quarter GDP is likely to be negative for the first time since the end of 2012. With the third-quarter outlook also poor, this will add to debate about the BOE joining the global easing trend.”

Sterling slipped 0.4% to $1.2467, and a move below $1.2441 would be its lowest since April 2017. The currency also slipped 0.3% to 89.86 pence per euro. The yield on UK 10-year government bonds was little changed at 0.72%, after touching the lowest since September 2016 last week. - Bloomberg

The rand is likely to remain in tight ranges today, says TreasuryONE's Andre Botha.

By 10:27, the rand was changing hands at R14.20 to the greenback.

"The rand seems fairly comfortable between R14.1000 and R14.2500 with direction giving data at a minimum at the moment.

"With the data cupboard empty we expect much of the day to be the same as yesterday with the rand staying in tight ranges. The risk for the market will start from tomorrow evening with the release of the FOMC minutes of the June meeting and Fed Chairman Powell's testimony to Congress.

"The market will watch these two events for an indication of where the Fed's thinking is in relation to their expected rate cut. On the sentiment side, we have seen stock markets under pressure which normally is not a good sign for risky assets and could be an indication that sentiment is changing.

"This could mean that we could see the rand sliding a little ... as we await news from abroad which could give the market some direction."

Asian stocks slip with US futures

Cormac Mullen and Laura Curtis, Bloomberg

European shares and US stock futures retreated alongside Asian equities as markets extended a downbeat start to the week.

The dollar edged up to the highest in three weeks.

The Stoxx Europe 600 Index fell while S&P 500 futures pointed to a third session of declines as investors await more clues on the path for US monetary policy.

Stocks reversed gains in Japan, fluctuated in South Korea and saw modest slides in Hong Kong and China.

Trading may continue to be choppy ahead of key testimony this week from Federal Reserve Chairman Jerome Powell, as investors assess prospects for easing following some conflicting signals on the global economy. US treasuries edged lower.

While traders continue to price in a Fed interest-rate cut this month, the latest payroll report signalled that the American economy remains on track, increasing uncertainty over what to expect from that policy meeting.

Elsewhere, oil retreated as economic anxiety hung over the market. Bitcoin rose for a second day, bringing the digital token’s gain this week to more than 15%, and Australia’s dollar fell for a fourth session after private gauges of business and consumer confidence declined.

Hong Kong’s dollar dipped as the city’s leader Carrie Lam said a controversial bill that would allow extraditions to China was “dead,” but stopped short of saying she’d withdraw the legislation after weeks of protests.

SA platinum giants bolster positions before wage talks begin

When the world’s biggest platinum miners sit down to hammer out a wage deal this week, they’ll hold two potentially winning cards in reserve: the cash and metal stockpiles to endure a strike.

Those buffers may prove crucial as Anglo American Platinum, Impala Platinum Holdings and Sibanye Gold meet with the Association of Mineworkers and Construction Union on successive days from July 9.

While the producers will be conscious that AMCU led the country’s longest-ever platinum mining strike in 2014, none can meet its demand for a pay increase of as much as 48% without undermining their businesses