Markets WRAP: Rand closes at R14.31/$

The rand closed at R14.31 to the greenback on Monday afternoon.

The day's range was between R14.16 and R14.33.

Analysts said earlier that the rand was likely to take its cue from the ongoing US-China trade war, which further intensified after China retaliated and imposed additional tariffs on some American goods.

This after the US hiked tariffs on $200 billion of Chinese imports on Friday.

OVERVIEW: US stocks sank after China retaliated with higher tariffs on a range of American goods. Treasuries jumped with the yen on demand for haven assets.  The S&P 500 headed for the biggest decline since January 3 and the Dow Jones Industrial Average slumped more than 500 points after China targeted some of the nation’s biggest exporters.

Caterpillar fell over 4% and Apple lost 5%. Soybeans plunged 2% and cotton prices sank 4%. The dollar erased gains and 10-year Treasury yields fell to the lowest level since late March.

The yen also rose.

Oil climbed as Saudi Arabia said two of its tankers were “sabotaged.”

Risk assets had been under pressure all morning after President Donald Trump warned China not to retaliate after the latest round of American measures. The selling picked up when China said it will raise tariffs starting June 1. An unverified Twitter post purportedly by China’s Global Times suggested the possibility of selling some of Treasuries holdings. The escalation comes after talks ended last week in a stalemate, with no timeline for future discussions.

The Stoxx Europe 600 index was dragged into the red as almost every industry sector retreated, extending declines as the European Union said it was finalising a list of US goods to target in the event Trump imposes levies on car imports.

Investors are struggling to find positive catalysts for risk assets after the US stepped up punitive tariffs on $200 billion in annual imports from China, and Trump started his Monday morning threatening that the trade standoff will “get worse” if there’s retaliation. While both economic superpowers have also worked hard since talks ended Friday to project calm and emphasise that they plan to continue negotiations, markets seem to sense fundamental divisions between the two sides.

On Monday, American officials are expected to announce details of their plans to boost tariffs on all remaining imports from China - some $300 billion in trade. Chinese state media blamed the US for a lack of progress in trade talks while emphasising the Asian nation’s economic resilience.

Elsewhere, Bitcoin climbed above $7 000 as the recent gains in cryptocurrencies extended over the weekend. Most base metals retreated as traders reassessed the demand outlook given the threats to global economic growth.

Here are the main market moves:

Stocks

The S&P 500 Index decreased 2.1% as of 09:53 New York time. The Stoxx Europe 600 Index fell 1.2% to the lowest in two months. The UK’s FTSE 100 Index dipped 0.6% to the lowest in nearly two months. The MSCI Asia Pacific Index declined 0.8%. The MSCI Emerging Market Index decreased 1.6%.

Currencies

The Bloomberg Dollar Spot Index pared gains to trade little changed. The euro increased 0.2% to $1.1258. The British pound advanced 0.3% to $1.3036. The Japanese yen jumped 0.8%, the most since March 22, to 109.11 per dollar. 

Bonds

The yield on 10-year Treasuries fell five basis points to 2.42%, the lowest since March 29. Germany’s 10-year yield dipped one basis point to -0.06%. Britain’s 10-year yield declined two basis points to 1.12%. 

Commodities

West Texas Intermediate crude increased 2.4% to $63.13 a barrel. Gold increased 0.9% to $1,298.90 an ounce. - Bloomberg

President Donald Trump threatened that the trade standoff with China will “get worse” if there is retaliation for US tariffs that go into effect on Chinese goods Monday.

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” Trump wrote in one of several Twitter messages.

Trump’s comments come after high-level talks between Chinese and American officials broke up May 10 without a deal and ahead of an expected announcement Monday from US officials detailing their plans to impose a 25% additional tariff on all remaining imports from China - some $300 billion in trade.

As Beijing promised retaliatory measures, Chinese state media blamed the US for a lack of progress in trade talks while emphasising the country’s economic resilience.

People’s Daily, the flagship newspaper of China’s Communist Party, said in a front-page commentary that the US should take full responsibility for the setbacks because it went back on its word and imposed more levies on Chinese products.

“That cast a shadow on the trade talks and directly led to the fruitless outcome” of trade discussions, the paper said. The ongoing trade fight between the world’s two biggest economies is roiling markets and weighing on projections for global growth. US equity futures slumped, pointing to a big drop at the open in New York, and stocks declined across Europe and Asia Monday as investors awaited the next phase of the escalating trade war between America and China.

The yuan tumbled and Treasuries rallied. Trump’s latest China trade comments brought to at least 30 the number of tweets or retweets he’s issued about China or tariffs since May 10, the day the last round of trade talks concluded. Perhaps with an eye toward the 2020 election, the president and his aides are insisting that the renewed conflict won’t adversely affect the US economy, putting them at odds with many economists.

The White House’s top economic adviser, Larry Kudlow, predicted that the impact on US jobs and growth from higher tariffs assessed on Chinese goods would be “de minimis,” while conceding that “both sides will suffer” from the trade war.

Trump has repeatedly said that China will pay the tariffs that increased May 10 to 25% from 10% on $200 billion in Chinese goods. Kudlow undercut that in an interview on “Fox News Sunday.”

No date has been set for fresh talks, but it’s likely Trump would meet with Chinese President Xi Jinping during the G20 meeting in Osaka, Japan, in late June, Kudlow said. - Bloomberg

Bitcoin climbs above $7 000 as cryptocurrency rally extends

Bitcoin climbed to the highest since September, briefly surpassing $7 000, as a rally in cryptocurrencies gathered pace in trading over the weekend.

Bitcoin advanced 11% from Friday to $6 957.73 as of 09:01 Tokyo time, having earlier hit $7 585, according to Bitstamp pricing.

Chinese stocks drop with yuan as trade ralks end in stalemate

Bloomberg News

Chinese stocks fell and the yuan weakened for a sixth day after the weekend’s trade talks with the US ended with no deal in sight.

The Shanghai Composite Index fell 1.1% as of 1:08 p.m. local time after losing as much as 1.6%.

The gauge staged a huge rally on Friday, supported by buying from state-backed funds and speculation Beijing would be able to counter effects of a worsening trade war with stimulus.

The yuan dropped as much as 0.75% in offshore trading Monday, wiping out its gain for the year and approaching 6.9 per dollar.

While Chinese shares remain some of the top performers in world this year, the recent rout wiped out as much as $1.2 trillion in value in just three weeks. Investors based overseas have been taking no chances, dumping mainland-listed shares at a dizzying pace in May following a record month of outflows in April.

That’s just as MSCI prepares to expand their weighting in its benchmarks at the end of this month.

"Trade talks have come to a deadlock and it’s unlikely we’ll see the situation turn for the better in the near term," said Raymond Chen, a portfolio manager with Keywise Capital Management Beijing Ltd. "Now all eyes will turn to China’s policies and how it will stimulate domestic consumption to maintain its growth."