Markets WRAP: Rand closes at R14.31/$ as all eyes turn to key Brexit vote

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

The day's range was between R14.22 and R14.31.

TreasuryONE's Andre Botha said earlier that today was an important day in terms of Brexit as Theresa May conveys to Parliament her latest  Brexit plan.

"Should her deal be accepted, we could see the GBP on firmer footing and the Brexit wheel finally gaining some momentum. The opposite is true should the deal be rejected ... a volatile GBP will be the order of the day.

"This is the main event today and an approved deal will assist with certainty and could help the rand." 

OVERVIEW: The pound slumped and UK bonds pared a drop after the chances of a Brexit deal winning approval from lawmakers on Tuesday were thrown into doubt.

US equity futures were mixed and European stocks declined, while the dollar nudged lower after data showed core inflation cooled. Britain’s exit from the European Union has moved to center stage once again ahead of a key vote in Parliament later today. The pound started the day higher after Prime Minister Theresa May announced a revised divorce deal, but dropped by as much as 1.1% versus the dollar as Attorney General Geoffrey Cox said the risks surrounding the Irish backstop - a major sticking point for those who support Brexit - were unchanged. 

Futures on the Dow, S&P 500 and Nasdaq all fluctuated, with American equity markets focused on airline shares after regulators and carriers moved to ground or block Boeing’s 737 Max jet following two deadly crashes in five months. The company’s shares slipped more than 3% in premarket trading.

Crude oil climbed after Saudi Arabia was said to extend deep supply cuts. Alongside Brexit developments, investors have a slew of economic data to digest this week. A key measure of underlying US inflation unexpectedly eased in February amid falling prices for autos and prescription drugs, giving the Federal Reserve more room to stick to its plan for being patient on raising interest rates. In the coming days the focus will turn to Chinese production and retail sales, as well as a Bank of Japan policy decision. 

These are the main moves in markets:

Stocks

Futures on the S&P 500 Index increased 0.1% as of 08:32 New York time, the highest in a week. The Stoxx Europe 600 Index fell 0.2%. The U.K.’s FTSE 100 Index gained 0.1%. The MSCI Asia Pacific Index advanced 1.2%, the biggest gain in almost six weeks. The MSCI Emerging Market Index climbed 1%. 

Currencies

The Bloomberg Dollar Spot Index declined 0.1%. The euro advanced 0.3% to $1.1275. The British pound decreased 0.4% to $1.3095. The Japanese yen increased less than 0.05% to 111.20 per dollar. 

Bonds

The yield on 10-year Treasuries gained one basis point to 2.65%. Germany’s 10-year yield increased less than one basis point to 0.07%. Britain’s 10-year yield advanced one basis point to 1.189%. 

Commodities

Gold increased 0.4% to $1,297.98 an ounce. West Texas Intermediate crude gained 0.8% to $57.23 a barrel, the highest in more than two weeks. - Bloomberg

US CPI prints at 1.5% for February, which was a little softer than the 1.6% which was expected.

TreasuryONE said in a note that the US dollar is under some pressure after the modest miss on CPI.

The rand is currently trading at R14.29 to the greenback.

The rand enjoyed a favourable day yesterday, tracking lower for most of the day, says TreasuryONE's Andre Botha. He said the local unit clawed back 10 cents on the US dollar, ending the day at R14.33.

“We have seen some risk-taking behaviour in the Asian session with Asian markets in the green which has filtered through in the rand and we have seen the rand trading at R14.2800 in morning trade.

"This is most likely down to a bit of Friday non-farm payroll number hangover as the mixed picture from US data has enticed the market to take on a bit of risk for higher yields. 

"Today is quite an important day in terms of Brexit as Theresa May conveys to Parliament her latest Brexit plan. Should her deal be accepted, we could see the GBP on firmer footing and the Brexit wheel finally gaining some momentum. The opposite is true should the deal be rejected ... a volatile GBP will be the order of the day.

"This is the main event today and an approved deal will assist with certainty and could help the rand stronger. Other data out today will be the release of the US CPI which will only serve to confirm that inflation is not of massive concern in the US and the Fed is right with their wait and see approach.

"We expect the rand to continue to trade within a narrow band as the market awaits new direction bearing events or data.” 

By 13:43, the rand was trading at R14.29 to the greenback.

The rand has recovered this morning, TreasuryONE said in a morning note to clients. By 10:10, the rand was trading at R14.28 to the greenback.

"Markets have been boosted overnight after good US retail sales numbers and news that Theresa May has secured a Brexit concession from the EU.

"The EU’s support for May’s backstop plan ahead of today’s parliamentary vote has seen the pound bounce to 1.3212 this morning.

"The rand has also recovered further to be trading at 14.2925 while the Euro is at 1.1260. We await the outcome of the vote in the UK today to see whether we get a further pullback against the dollar. Wall Street closed higher, with the Nasdaq up over 2% on the day. Asian stocks have also closed up across the board but Gold is a touch lower at $1296.13 on the 'risk on' sentiment.

Pound surges as May gets new Brexit deal

The pound surged as the British government said it had secured changes to its divorce deal from the European Union and planned to hold a vote in the UK parliament. Sterling climbed as much as 1.1% in Asia-Pacific trading Tuesday after climbing more than 1% the previous day amid optimism over Brexit. 

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