Markets WRAP: Rand closes at R14.4339/$

The pound looked set to end a record run of losses against the euro as Theresa May’s resignation as UK prime minister led traders to take bets on further political turbulence off the table. Sterling gained for the first time in 15 sessions against the common currency Friday, having been battered this month by the prospect that a hard-line Brexit candidate could replace May.

With that risk now factored into the market, traders are waiting for the results of this week’s European parliamentary elections on Sunday and for a successor to May to emerge.

"The only 'good news' for the pound is that it has fallen for 14 days in a row," said Jordan Rochester, a currency strategist at Nomura International.

"What we’re witnessing now is 'buy-the-rumor, sell-the-fact' profit taking, that is for now boosting the pound. It will probably end up being a gift for those who are considering fresh shorts."

The pound rose 0.2% to 88.18 pence per euro, having fallen more than 3.5% since May 3. Sterling also made only its third gain against the dollar in that period, rising 0.3% to $1.2690. The UK currency has been the worst performer among Group-of-10 peers this month, reversing an advance earlier this year.

Ahead of May’s announcement Friday that she will step down on June 7, markets had already turned to this issue of who could replace her. The front-runner is former Foreign Secretary Boris Johnson, who is seen more likely to put a no-deal divorce from the European Union back on the table to placate euroskeptic Conservative Party members and to see off a challenge from Nigel Farage’s Brexit Party.

UK government bonds fell, with 10-year yields up two basis points to 0.98%, having touched the lowest since 2017 earlier in the day. As political uncertainty clouds the outlook, traders are also starting to bet the Bank of England may need to shift gear toward interest-rate cuts rather than hikes. - Bloomberg

OVERVIEW: US equity futures climbed with European stocks at the end of a bruising week in which escalating trade tensions dominated the market landscape. The pound rose after UK Prime Minister Theresa May laid out a timetable to quit.

Contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 all rose in the wake of steep declines a day earlier, and after President Donald Trump said that Huawei Technologies, which was put on a US blacklist earlier this month, could be part of any trade pact with China.

Miners pushed the Stoxx Europe 600 index higher, while shares in Asia climbed as Chinese equities finished little changed and Indian stocks rebounded. Despite the gains, a gauge of global equities is headed for a third straight weekly drop, its longest losing streak of the year. The rally in sovereign bonds showed signs of easing and yields on 10-year Treasuries pulled back from the lowest since 2017.

Oil climbed following the biggest slide since December on Thursday. Sterling advanced after May announced she will step down as party leader June 7. Ahead of a long weekend for both the US and UK, concerns are mounting that the trade dispute could cripple global growth, with disappointing American factory data Thursday hinting at the fragility of the expansion.

"The trade war is going to cause growth to slow, both in the US and China, and therefore globally - there is no doubt about that," Komal Sri-Kumar, founder and president of Sri-Kumar Global Strategies, told Bloomberg TV in New York. "The trade war is taking on new dimensions."

Elsewhere, Australia’s 10-year bond yield reached another all-time low amid calls for as many as three central bank interest-rate cuts this year. The yuan was largely flat on signs of stabilisation from China’s central bank this week.

These are the main moves in markets:

Stocks

The Stoxx Europe 600 Index rose 0.8% as of 12:22 London time, the largest advance in more than a week. Futures on the S&P 500 Index rose 0.6%. The UK’s FTSE 100 Index rose 0.8%, the largest advance in more than a week. The MSCI Emerging Market Index gained 0.4%. The MSCI Asia Pacific Index increased 0.2%. 

Currencies

The Bloomberg Dollar Spot Index declined less than 0.05%, the lowest in more than a week. The euro gained less than 0.05% to $1.1185, the strongest in more than a week. The British pound gained 0.2% to $1.2687, the biggest climb in three weeks. The Japanese yen fell 0.1% to 109.68 per dollar. 

Bonds

The yield on 10-year Treasuries increased one basis point to 2.33%. Britain’s 10-year yield rose two basis points to 0.974%. Germany’s 10-year yield gained one basis point to -0.11%. 

Commodities

Gold dipped 0.1% to $1,281.55 an ounce. West Texas Intermediate crude climbed 1.3% to $58.69 a barrel, the biggest increase in more than a month. - Bloomberg

May to step down in two weeks

Theresa May will resign as British prime minister on Friday, June 7.

Speaking in front of 10 Downing Street on Friday morning, May said she had done everything she could to convince British MPs to back her deal for Brexit, but without success.

"It is now clear to me that it is in the best interests of the country for a new prime minister to lead that effort," she said.

The rand is weaker as EM currencies are bearing the brunt of the US-Chine trade uncertainty, says Peregrine Treasury Solutions's Bianca Botes.

By 10:28, the rand was changing hands at R14.42 to the greenback.

"The dollar might be blowing off steam following a run to reach a two-year high, as the potential impact of the trade war on the US economy becomes evident, but emerging markets are definitely bearing the brunt of the uncertainty.

"The rand broke through the R14.50/$ mark in overnight trade, signaling that another leg lower is on the cards. The SARB held interest rates unchanged yesterday in line with expectations.

"Domestic growth and the US-China trade war remain key concerns for the SARB. The European parliamentary elections continue, while the US is set to release durable goods data this afternoon. 

"The new leg weaker indicates an expected range of R14.42 to R14.56 for the day."

Stocks mixed on trade woes

Adam Haigh, Bloomberg

Stocks in Asia traded mixed, still on track for a third week of losses, as investors digested the latest trade war headlines. Treasuries steadied following Thursday’s rally.

Japanese shares were little changed, Chinese stocks edged higher and there were gains in U.S. and European equity futures.

Stocks in Korea and Australia retreated. After the close on Wall Street, President Donald Trump said that Huawei, which was put on a U.S. blacklist earlier this month, could be part of a trade pact with the country.

The rally in sovereign bonds showed signs of easing after yields on 10-year Treasuries touched the lowest since 2017. The dollar slipped and the euro pushed higher.

Elsewhere, Australia’s 10-year bond yield reached a fresh all-time low amid calls for as many as three central bank interest-rate cuts this year. The yuan was flat amid signs of stabilization from China’s central bank this week.

Ahead of a long US holiday weekend, concerns are mounting that the trade dispute could cripple global growth and disappointing US factory data Thursday showed the fragility of the expansion there.

“The trade war is going to cause growth to slow, both in the US and China, and therefore globally -- there is no doubt about that,” Komal Sri-Kumar, founder and president of Sri-Kumar Global Strategies Inc., told Bloomberg TV in New York. “The trade war is taking on new dimensions.”

Meantime, the pound strengthened. Theresa May is set on Friday to announce a timetable for her resignation as UK Conservative Party leader and prime minister after a backlash over her Brexit plans, people familiar with the matter said.