Markets WRAP: Rand closes at R13.61/$

The rising-dollar trend that inflicted so much damage on risk appetite in 2018 is all but a thing of the past, according to Amundi Asset Management. And that can only be good for emerging markets.

“The two macro threats - basically the dollar and higher interest rates coming from the US - are basically diminished and they are behind us,” Pascal Blanque, group chief investment officer for Amundi, said in an interview in Singapore.

“There is room moving forward for an appreciation of most currencies in the emerging-market space. So this is a piece of good news.

”Europe’s largest asset manager, which oversees $45 billion in emerging-market assets, joins a raft of banks and investors, from Morgan Stanley to Goldman Sachs, that are betting an easing of trade tensions and a less hawkish Federal Reserve will revive developing economies after a torrid 2018.

The MSCI Emerging Markets currency index has risen 1.9% in January, headed for its biggest monthly advance in a year. Still, the threat posed by a strengthening dollar and rising US rates has now been replaced by concern over global growth. And that makes India, Russia and Chile better bets among the emerging markets because they’re likely to fare better than those with weaker fundamentals, according to Amundi.

Amundi also likes stocks and bonds in China, Indonesia, the Czech Republic, Brazil and Peru, according to Blanque. They offer high-yielding currencies with sustainable levels of debt and earnings growth as well as the monetary and fiscal capability to counter a cooling of their economies, he said.

When it comes to markets to avoid, Amundi is looking at the balance-of-payments as a key metric, shunning Turkey. It’s also guarded on South Africa and Argentina because of their deficits, Blanque said. Countries such as Argentina, South Africa and Nigeria also face risks from the upcoming elections, he said. - Bloomberg

Gold advanced to an eight-month high as investors await clues about the outlook for US monetary policy, with Federal Reserve Chairman Jerome Powell scheduled to hold a news conference later Wednesday after the central bank’s inaugural rate-setting meeting of 2019.

Spot bullion rose as much as 0.3% to $1,315.99 an ounce, the highest level since May, and was at $1,313.32 at 11:26 in London.

Gold is up 2.4% this year and is heading for a fourth straight monthly gain, while a gauge of the dollar is down for a third month. The precious metal is seeing renewed interest as a store of value as investors weigh prospects of fewer US rate hikes this year and track signs of slower global growth amid the US-China trade war.

Bloomberg Economics’ early indicator showed China’s economy slowed further in January, while companies like Apple and Caterpillar, are feeling the pain. The delay of US government data after the partial shutdown, as well as the negotiations over Britain’s Brexit deal, have also added to uncertainty in financial markets. While the two largest economies are holding talks this week aimed at finding a solution to the trade war, the US’s criminal charges against China’s Huawei have fueled tensions. That lessens the prospects of any major deal, according to John Sharma, an economist at National Australia Bank.

‘Provide Support’

“Moreover, with easing economic activity, the possibility of further rate hikes remains less assured than it was in 2018, which will likely provide support to gold,” Sharma said in an email. “Investors are likely to follow Powell’s comments on the outlook for the economy and, by extension, the likelihood, or not, of future rate rises.”

While the Fed hiked four times last year, officials have indicated a willingness to be patient and flexible in their approach to additional increases. The latest Bloomberg survey of economists showed respondents pushed back the timing of expected hikes in 2019, but not the number, sticking with a forecast for two moves. A majority said they now expect those to come in June and December, instead of March and September, as predicted in a similar survey a month ago. Powell will step up the Fed’s communication efforts this year, with plans to hold a press conference to explain the bank’s stance after all eight policy meetings. That’s twice the number held in 2018.

Investor sentiment in gold remains strong, with holdings in bullion-backed exchange traded funds at the highest since April 2013 after about 61 tons were added this year. In other precious metals, silver traded at the highest since July, platinum added 0.6% and palladium rose 0.2%. - Bloomberg

OVERVIEW: Stocks across the world held firm on Wednesday as investors grappled with a wall of catalysts, from trade talks and the Fed meeting to a slew of corporate earnings.

The pound halted a two-day decline and UK shares gained after lawmakers voted to renegotiate Brexit. Futures across the S&P 500, Nasdaq and Dow Jones indexes all rose, while the Stoxx Europe 600 Index edged higher amid mixed national gauges in the region.

The UK’s FTSE 100 Index posted the biggest advance, climbing for a second day. Stocks in Japan and China slid, while they increased in South Korea, Australia and Hong Kong. Treasury yields ticked up slightly and the dollar drifted. The yuan advanced to the highest since July on hopes for the US-China trade talks getting underway in Washington.

Gold climbed to an eight-month high, underscoring lingering investor caution. Lackluster corporate earnings in January have added to investor concerns about the health of the global economy, and all eyes will be on tech giants including Facebook, Microsoft and Samsung when they report today. That will be the backdrop for the Fed’s policy decision and especially its assessment of the US economy, while the arrival of Chinese negotiators in Washington for talks to resolve the ongoing trade dispute adds another layer of complexity.

“Such is the extent of uncertainty across global markets at the moment that investor sentiment is struggling to gain any meaningful traction,” Simon Ballard, a macro strategist at First Abu Dhabi Bank, said in a note.

“The overarching veil of caution suggests that near-term positive momentum potential will likely remain limited. It is still very much global trade and the global rates outlook that sit at the heart of investor focus.

”The pound rose, trimming losses from Tuesday after lawmakers voted against a key proposal that sought to rule out the prospect of the UK crashing out of the European Union without a deal. Members of Parliament including Prime Minister Theresa May backed a proposal to strip out the most difficult part of her proposed divorce package and re-open talks with the European Union.

Apple shares extended gains in pre-market trading after first-quarter earnings offered some reassurance to investors that there is life beyond the company’s flagship product. Elsewhere, the Mexican peso declined as Fitch Ratings cut the debt of the state oil company to one notch above junk.

Iron ore surged after Brazil’s Vale SA, the world’s largest producer, outlined plans to cut output after a deadly dam breach.

Among key events in the coming days: Chinese President Xi Jinping’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 Microsoft, Facebook, Alibaba, Qualcomm, Tesla, Samsung and Sony announce earnings. Wednesday Fed Chairman Jerome Powell holds a news conference after the FOMC rate decision.

These are the main moves in markets:

Stocks

The Stoxx Europe 600 Index gained 0.1% as of 09:27 London time. Futures on the S&P 500 Index climbed 0.2%. The MSCI All-Country World Index rose 0.1%. The UK’s FTSE 100 Index jumped 0.8% to the highest in more than a week. The MSCI Emerging Market Index increased 0.2%.

Currencies

The Bloomberg Dollar Spot Index declined less than 0.05%. The euro fell less than 0.05% to $1.1428. The British pound increased 0.3% to $1.3106. The Japanese yen climbed less than 0.05% to 109.35 per dollar.

Bonds

The yield on 10-year Treasuries increased one basis point to 2.72%. Germany’s 10-year yield declined less than one basis point to 0.20%. Britain’s 10-year yield decreased one basis point to 1.261%. Japan’s 10-year yield fell less than one basis point to 0.005%.

Commodities

West Texas Intermediate crude declined less than 0.05% to $53.30 a barrel. Gold rose 0.1% to $1,313.68 an ounce, the highest in almost nine months. Iron ore surged as much as 9.5% to the highest since March 2017 in Singapore. - Bloomberg

Corporate Treasury Manager at Peregrine Treasury Solutions said in a morning note to clients that the EU has adopted a tough stance with Britain, rejecting the notion of reopening the Brexit treaty for amendments, causing the GBP to slip by more than 0.7%, while the US and China face fundamental disagreement regarding trade and IP rights in their high level talks.

"The uncertainty in the US and UK has helped to drive the two major currencies down, leaving some room for the rand to break below the R13.60/$ resistance level.

"The only question now is whether this momentum can be sustained.   The rand has continuously strengthened since the start of the year and it is likely to continue benefiting from the weaker dollar.

At 10:10 the rand was trading at R13.60 to the greenback.

"Consumer spending and business confidence numbers from the EU as well as GDP figures and interest rate discussions in the US will determine the course of the rand today, with a slight slowdown in the US economy being widely expected together with a continuously dovish Fed.

"Both of these would see the rand gain additional momentum in the afternoon session.  

"Technical levels indicate an intra-day range of R13.52 to R13.69."

Pound stable after Brexit drop, Asia stocks mixed before trade talks - AFP 

The pound ticked up slightly in Asia on Wednesday after suffering heavy losses on worries about a possible no-deal Brexit, while regional equities were mixed ahead of crunch trade talks between China and the United States.

MPs on Tuesday returned to Westminster to vote on a series of proposals dealing with Britain's exit from the European Union after roundly rejecting Prime Minister Theresa May's controversial deal two weeks ago. In a closely watched series of votes, they rejected a plan to put back the date of leaving the EU if no new agreement is agreed by the end of next month.

They then backed a proposal asking May to replace her deal's so-called backstop provision preventing a hard border with Ireland - a proposal immediately rejected by an EU spokesman. While observers still expect lawmakers to pass a bill that will avoid a no-deal Brexit - which economists warn could be economically catastrophic - the latest developments raised the prospect of it happening.

"The pound fell because (the) vote leaves a no-deal Brexit on the table, but it has not collapsed into oblivion because at present there is no alternative to May's deal and we are not yet at the no-deal do-or-die moment," said Neil Wilson, chief market analyst at Markets.com.

"Could she really get it through at the last? It would be a remarkable coup."

Groundless optimism?

But Minori Uchida, Tokyo head of global markets research at MUFG Bank, sounded a note of caution. "Players are still thinking that a hard Brexit will be avoided in the end, but the optimism is groundless," he told AFP.

"Hard Brexit risks are still here."

The pound sank around one percent against the dollar and the euro after the votes but it managed to edge back slightly on Wednesday.

UK Parliament rips up Brexit deal 

Theresa May promised to go back to Brussels to re-negotiate Brexit after Parliament ripped up the deal she’s spent the past year and a half stitching together.

On a rare good night for the UK prime minister, she won the backing of members of Parliament for her Plan B - to scrap the most difficult part of the divorce package and re-open talks with the European Union.

May chose to tear open the exit deal to unite her divided Conservative Party.

But with just eight weeks until Britain is scheduled to leave the bloc - and the EU opposed to changes - the premier faces a mountainous task delivering on her pledge. The pound fell as Parliament rejected an attempt to extend that exit day deadline, raising the chances of a chaotic no-deal split.

Tokyo shares open flat - AFP

Tokyo shares opened flat on Wednesday as traders awaited the resumption of US-China trade talks.

The Nikkei 225 index, which briefly went into positive territory at the open, lost 0.13%, or 26.89 points, to 20 637.75 in early trade while the broader Topix index was up 0.03%, or 0.43 points, at 1 557.52.

"Investors will be in a wait-and-see mode ahead of the Federal Reserve policy announcement, the US-China trade talks and financial results," Yoshihiro Ito, chief strategist at Okasan Online Securities, said in a commentary.

"The market is likely to lack a sense of direction."

On Wall Street, shares of large tech companies tumbled ahead of big earnings announcements from the sector. The tech-rich Nasdaq Composite Index finished 0.8% lower at 7 028.29. The Dow Jones Industrial climbed 0.2% to 24 579.96, while the broad-based S&P 500 shed 0.2% to 2 640.00.