Markets WRAP: Rand closes at R14.07/$

The rand closed at R14.07/$ on Wednesday. 

Here's how the day wrapped up: 

USDZAR 14.0754

EURUSD 1.1246

EURZAR 15.8213

GBPUSD 1.2493

GBPZAR 17.5757

AUDZAR 9.7818

CADZAR 10.7253

CNYZAR 2.0462

ZARJPY 7.7124

CHFZAR 14.2019

R186 8.11%

US 10 Year 2.04%

JSE 1.28%

FTSE 0.09%

S&P 500 0.52%Brought to you by TreasuryONE

The rand has strengthened by nearly 1% thanks to a surprisingly dovish Fed, said Treasury Partner at Peregrine Treasury Solutions, Bianca Botes.

"Federal Reserve Chairman Jerome Powell’s testimony to the US Congress is surprisingly more dovish than markets were expecting, given the US jobs data.

"The rand has gained just over 0.8% since opening and is currently trading at R14.05/$.

"We think that the local unit is now likely to retest the R14.00 mark as the dollar comes under renewed pressure."

OVERVIEW: US stock futures erased declines and Treasuries pared gains after Jerome Powell signaled an openness to rate cuts amid ongoing uncertainty in the economy. Gold rose and the dollar fell.

Contracts on the S&P 500 turned higher after the Federal Reserve chairman said in prepared remarks that downside risks to the economy remain with trade wars softening business investment and weak inflation. The yield on 10-year Treasuries fell to 2.06% after climbing above 2.10% for the first time in a month. The dollar weakened. Oil rose above $59 a barrel in New York.

US Traders Bracing for a Cut

Powell’s remarks came ahead of two days of semi-annual testimony in Congress on the economic and policy outlook that will set expectations for the Fed’s policy meeting at the end of July. He appears at 10:00 in Washington. With both equities and bonds sitting on outsize gains since the start of the year, it’s unclear what further impetus they can get given that traders are already discounting a cycle of interest-rate cuts. Investors will also scour June minutes from the Fed’s June meeting later for any sign that the Fed may pull back on policy easing.

“There is a very real risk that the Fed maintains a neutral stance as members are decidedly split on the need for policy accommodation,” said Nema Ramkhelawan-Bhana, an economist at FirstRand Bank in Johannesburg. “If Powell follows a similar tack, it would immediately unravel the weave of risk that global markets have constructed over the last month.”

In Europe, strong manufacturing data from France and low demand at an auction of German bunds weighed government debt. Equities slipped for a fourth day. The pound halted a drop to a two-year low as data showed the UK economy rebounded in May. The trading session in Asia was mixed, with modest gains in Hong Kong and South Korea and slides in Japan and China.

Meanwhile, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with their Chinese counterparts, marking the first high-level contact after their presidents agreed to resume trade talks last month.Here are some key events coming up:Powell testifies before Congress on monetary policy and the state of the US economy on Wednesday (the House of Representatives) and Thursday (the Senate).Fed minutes are due on Wednesday, ECB minutes on Thursday.

A key measure of US inflation - the core consumer price index, due Thursday - is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.

US producer prices are due on Friday.

Here are the main moves in markets:

Stocks

Futures on the S&P 500 Index rose 0.2% as of 8:33 New York time. The Stoxx Europe 600 Index rose 0.1%.Germany’s DAX Index sank 0.4% to the lowest in almost two weeks.The MSCI Asia Pacific Index increased 0.1%.The MSCI Emerging Market Index advanced 0.4%.

Currencies

The Bloomberg Dollar Spot Index fell 0.2%. The euro increased 0.1% to $1.1215, the biggest climb in more than two weeks. The British pound climbed less than 0.05% to $1.2468. The Japanese yen declined 0.1% to 108.95 per dollar, the weakest in almost six weeks.BondsThe yield on 10-year Treasuries was flat at 2.05%. Germany’s 10-year yield increased seven basis points to -0.29%, the highest in almost three weeks on the biggest increase in 13 months. Britain’s 10-year yield climbed five basis points to 0.774%, the highest in more than a week.

Commodities

Gold rose 0.6% to $1,410 an ounce.West Texas Intermediate crude gained 2.2% to $59.12 a barrel, hitting the highest in almost two weeks with its fifth straight advance.Iron ore decreased 1.5% to $114.94 per metric ton. - Bloomberg

The rand is stable while the pound is at a two-year low, says Peregrine Treasury Solutions's Bianca Botes.

By 11:38, the rand was changing hands at R14.18 to the greenback.

"All eyes will be on the testimony by Federal Reserve chair Jerome Powell today as he testifies in front of the US Congress, addressing key elements such as the economic outlook and monetary policy stance.

"The rand is likely to take its lead from this testimony which will lay the ground for the interest rate decision later this month. A less dovish stance is largely anticipated following strong employment data from the US. The GBP is under pressure against the dollar and other currencies, reaching two-year lows as Brexit, a recovery in the USD and poor economic data continue to weigh on the currency.

"We see a buying opportunity for anybody looking to purchase GBP presenting itself, at levels last witnessed in April 2017.

"While the rand has remained stable, a less dovish Fed is likely to add some pressure to the local unit, which could set its sights on the R14.30 mark."

European stocks slide ahead of Fed chair's testimony

Adam Haigh and Laura Curtis

Stocks in Europe slipped along with US equity-index futures as investors awaited clues on policy from Federal Reserve Chairman Jerome Powell.

Treasury yields touched a three-week high.

The Stoxx Europe 600 index fell for a fourth day, while contracts for the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all pointed to a drop at the New York open.

The trading session in Asia was mixed as Hong Kong and South Korea equities gained modestly, and Japan and China declined. Yields on 10-year Treasuries reached 2.08% and the dollar was steady.

European government bonds dropped amid a slew of data, including strong manufacturing numbers from France. The pound extended a decline.