Markets WRAP: Rand closes at R13.68/$

The rand closed at R13.68 to the greenback on Monday afternoon. The day's range was between R13.58 and R13.72. 

Earlier, Bloomberg reported that the rand's start to the year had been among the best ever.

Pepkor group increased its revenue by 6.1% to R19.5bn for the three months ended December 31, 2018, the retailer said in a trading update issued on Monday afternoon.

The group's clothing and general merchandise segment reported sales growth of 6.1%.

Currency devaluation and poor performance in Zimbabwe affected its sales in African operations -  Pep Africa sales declined 4.8% in rand terms.

But in constant currency terms sales grew 18.7%, African operations were mostly supported by improved performance in Angola, Zambia and Nigeria.

The share price which was trading at R20.89 before the release of the update dipped to R20. The share was trading 2.62% weaker at R20.45 by 16:10.    

Caterpillar just reported the biggest quarterly profit miss since at least the beginning of 2008, sending its shares plunging in pre-market trade.

The construction and mining equipment maker, widely considered a bellwether for the global industrial economy, reported a fourth-quarter profit that lagged analysts’ average estimate by 44 cents a share.

According to Bloomberg data, this is the biggest miss reported by the company since at least the first quarter of 2008.

Shares of the company dropped 5.3% in pre-market trade, and also weighed on stocks of other industrial machinery makers, such as Deere, Cummins and Illinois Tool Works.

Shares of Boeing, which along with Caterpillar has been favorite investor proxy for US-China trade tensions, fell 0.9%.

For 2019, Caterpillar said it assumes a modest sales increase based on the fundamentals of its “ diverse end markets as well as the macroeconomic and geopolitical environment”. - Bloomberg

OVERVIEW: European stocks fell alongside US equity futures while Asian shares edged lower on Monday as a potentially crucial week for global trade and monetary policy got under way. The Stoxx Europe 600 Index opened in the red after two days of gains, with most sectors falling. West Texas oil fell below $53 a barrel after America’s rig count rose for the first time this year. Treasuries and the yen edged higher.

Earlier in Asia, Japanese shares retreated, while stocks in Hong Kong and China pared earlier gains to trade little changed. Chinese markets were bolstered as the People’s Bank of China freed up a potential $37 billion for bank lending and a new chief was named to lead the country’s main securities regulator. The yuan also appreciated to its strongest against the dollar since July ahead of Vice Premier Liu He’s trip to Washington for trade talks.

Also this week, Federal Reserve Chairman Jerome Powell will host a press briefing after the US central bank’s rate decision. JPMorgan reckons only Treasuries and money markets have fully priced in a Fed pivot to holding off on further rate hikes - with upside remaining for stocks and corporate debt.

Meanwhile, the pound slipped before more potentially key votes in the British parliament on Tuesday. Investors are also bracing for a flurry of US economic figures including GDP and jobs data.

Among key scheduled events in the coming days:Chinese President Xi’s top economic aide, Vice Premier Liu He, will meet with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday. Tech giants Apple, Microsoft, Facebook, Alibaba, SAP, Qualcomm, Tesla, Samsung and Sony announce earnings. On Tuesday the UK Parliament votes on amendments to Theresa May’s Brexit deal with the EU. The EU Parliament debates Brexit on Wednesday. Wednesday Fed Chairman Jerome Powell holds a news conference after the FOMC rate decision.

These are the main moves in markets:

Stocks

Futures on the S&P 500 Index fell 0.4% as of 08:10 London time. The Stoxx Europe 600 Index declined 0.3%. The MSCI Asia Pacific Index dipped 0.2%. The MSCI Emerging Market Index decreased 0.1%.

Currencies

The Bloomberg Dollar Spot Index gained 0.1%. The euro decreased 0.1% to $1.1397. The British pound fell 0.3% to $1.3163, the largest fall in more than a week. The Japanese yen increased 0.1% to 109.46 per dollar.

Bonds

The yield on 10-year Treasuries declined one basis point to 2.75%. Germany’s 10-year yield gained one basis point to 0.20%. Britain’s 10-year yield was unchanged at 1.317%.

Commodities

West Texas Intermediate fell 1.7% to $52.80 a barrel. Gold dropped 0.4% to $1,300.64 an ounce. - Bloomberg

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions said the day's range for the rand was expected to be between R13.60 and R13.78.

Botes said markets will shift its attention to the FOMC meeting this week.

"The committee is expected to acknowledge the growth concerns and to maintain a paused position on interest rate hikes. The dollar is marginally weaker today, bolstering the rand to trade at R13.61/$ this morning.   

"With no major data due for release today, the market will be keeping an eye on European Central Bank president Mario Draghi’s statement this afternoon.

"Locally, inflation slipped to 4.5% following the SARB’s November 2018 interest rate increase and lower fuel prices that resulted from a stronger rand and softer oil prices.

"This points to an unchanged interest rate at the next MPC meeting.  

"Abroad, the US housing market disappointed, with monthly home sales dropping 6.4% in December, while initial jobless claims dropped to 199k from the previous 217k. 

"While there seems to be a light at the end of the tunnel for Brexit, with Ireland ready to back Theresa May next week, the ECB has warned of waning economic growth in the greater EU. 

"With politics remaining in the spotlight, the competition between local political parties is set to heat up as we head towards the general election in May, and sifting through the noise will be crucial for market participants.  

"The rand is likely to remain range bound with steady directional moves on the back of risk appetite and overall market sentiment.

"The current increase in risk appetite saw the rand gain momentum against the greenback." 

The dollar closed lower against most currencies on Friday and this morning we find the Euro at 1.1422 and the Pound at 1.3199, TreasuryONE said in a morning note to clients. 

"Wall Street closed on a positive note with all three indices in the black. We have the US China trade resuming talks later this week as well as the Feds FOMC meeting to look out for.

"The FED is expected to keep rates unchanged. The EM currencies continue to trade firmer and the rand is at 13.6000 this morning. By 09:20, the rand was trading at R13.61.

"Gold is also stronger at $1 302.60 on the back of the softer Dollar. Oil is holding steady at $61.36."

On the Up

Asian markets mostly rose Monday as investors look ahead to a week chock-full of crucial events including the high-level trade talks between China and the United States.

Hopes that a deal can be struck between the world's top two economies has helped fuel a rally this month in global equities, which had been hammered in December.

While there have been conflicting reports on the likelihood of an agreement to solve the trade war, analysts say it is in the interests of both sides to reach a deal, with China's economy stuttering and President Donald Trump gearing up his re-election campaign.

Tokyo stocks open lower - AFP

Tokyo stocks opened lower on Monday as investors braced for corporate results by major companies.

The benchmark Nikkei 225 index slipped 0.19%, or 38.50 points, to 20 735.06 in early trade while the broader Topix index was down 0.22%, or 3.47 points, at 1 562.63.

World stocks rose Friday, ending a shaky week on a positive note as investors looked ahead to crucial trade talks between China and the United States, and responded to solid corporate earnings reports.

But "the biggest focus this week will be Japanese and US corporate results" as the earnings season gets into full swing, Okasan Online Securities said in a note. Stock prices have recently been on a recovery path but "the buyback steam will come to a halt unless companies wipe out uncertainty over earnings", it said.

US President Donald Trump announced he had agreed to reopen the federal government after public services started to buckle - but markets appeared little moved.