Markets WRAP: Rand closes at R13.37/$

The rand closed at R13.37 to the greenback on Friday afternoon. The day's range was between R13.24 and R13.37.

Andre Botha, Senior Dealer at TreasuryONE said in an earlier note to clients, “The rand is still enjoying the EM wave that was brought about by the US Fed that gave the rand the necessary spurt to make the movement in the rand for January the best January in terms of rand strength in recorded history.

"The rand flirted with the R13.20 level at one stage which meant the rand strengthened by R1.40 in January.

"The question then becomes will the rand find some stability at these levels or will it give up its gains in the short term and trade closer to the R14.00 level.

"Numbers out of China suggest that the Chinese economy is slowing down which could cause some concern for EM's should sentiment switch to ultra risk-averse.

"However, this will be against the backdrop of President Donald Trump commenting that the Chinese trade talks are well underway and it's going to be the biggest trade deal ever. This could be an interesting tug of war between the two opposing forces."

TreasuryONE said that the US non-farm payrolls came out at 304 000, much better than the expected 165 000. The US jobless rate increased from 3.9% to 4.0%. USDZAR trading fairly muted, still trading around R13.33.

British and European Union regulators agreed to cooperate on oversight of financial firms and share key market information in a move that will help avert problems arising from a no-deal Brexit scenario, especially for asset managers. 

The European Securities and Markets Authority detailed two cooperation agreements, known as a memoranda of understanding, with the UK Financial Conduct Authority, as politicians in both jurisdictions seek to cushion the effects of the UK leaving in March without a divorce deal.

The agreement smooths the way for regulators in the UK and remaining 27 EU member states to cooperate on oversight of investment funds as well as to share data, including for potential market abuse investigations.

Such arrangements are essential for EU regulators to oversee mutual funds that delegate investment decisions to portfolio managers in New York, Asia or London after Brexit. The deal also allows authorities to exchange information on credit rating agencies and trade repositories. The agreements should “minimise the potential for disruption, which we know is particularly important for the investment management sector, credit rating agencies and trade repositories,” FCA Chief Executive Andrew Bailey said in a statement. - Bloomberg

OVERVIEW: Stocks were lackluster on Friday following the best month for global equities in more than seven years, as earnings continue rolling in and investors watch for the resumption of US-China trade talks. The dollar was steady.

European shares were little changed along with contracts on the Dow and S&P 500, while those on the Nasdaq slipped as Washington trade negotiations, that had been tipped as “determinative”, in the end broke up with an agreement to keep talking.

News that China plans to buy substantially more American agricultural and energy goods failed to light much fire under Asian shares already heading for a fourth straight weekly advance. Treasuries retained most of their gains since the Federal Reserve’s pivot Wednesday toward a more neutral stance on monetary tightening.

Traders now turn their attention to Friday’s monthly American labour report amid an ongoing earnings season that’s given investors mixed signals. Technology shares gained in the US on Thursday thanks to solid corporate reports, though a disappointing sales forecast from Amazon has now curbed optimism.

On the trade front, Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer head to China in mid-February.

“The outlook is pretty good and markets can go a lot further,” Homin Lee, a macro strategist at Lombard Odier, told Bloomberg TV in Hong Kong. “Assuming there’s no further hiccups in the Fed communication, we can really see the rally continue for the remainder of the year.”

Elsewhere, the pound weakened as data showed UK manufacturing fell to a three-month low in January. Oil held below $54 a barrel in New York on concerns about demand.

Among key events in the coming days:The coming week will see central banks reviewing monetary policy, including the Bank of England, in Australia, Brazil, Mexico, Russia, Serbia, Philippines, Thailand and India. Earnings season rolls on with notable releases from Alphabet, Toyota, BP and Disney. Chinese financial markets will close next week for the Lunar New Year holiday.

These are the main moves in markets:

Stocks

The Stoxx Europe 600 Index gained 0.1% as of 09:41 London time. Futures on the S&P 500 Index decreased less than 0.05%. The UK’s FTSE 100 Index increased 0.4% to the highest in almost two months. Germany’s DAX Index increased 0.1%. The MSCI Emerging Market Index rose less than 0.05% to the highest in more than four months. The MSCI Asia Pacific Index declined 0.1%.

Currencies

The Bloomberg Dollar Spot Index was unchanged. The euro increased 0.1% to $1.1463. The British pound declined 0.2% to $1.3083. The Japanese yen climbed less than 0.05% to 108.88 per dollar, the strongest in more than two weeks.

Bonds

The yield on 10-year Treasuries fell less than one basis point to 2.63%, hitting the lowest in more than four weeks with its fifth straight decline. Germany’s 10-year yield increased one basis point to 0.16%. Britain’s 10-year yield rose less than one basis point to 1.224%. Italy’s 10-year yield increased 12 basis points to 2.704%.

Commodities

West Texas Intermediate crude decreased 0.7% to $53.44 a barrel. Gold fell 0.1% to $1,319.48 an ounce. - Bloomberg

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions says emerging markets are basking in the afterglow of a weaker dollar and slowing global growth.

"While the developed world is taking active steps to counter the slowdown in global growth, market sentiment has returned to emerging markets with a significant uptick in volume in both the equity and currency space."

By 11:06, the rand was changing hands at R13.27 to the greenback.

"The World Bank, along with the IMF, has recently voiced concerns about global growth, while both the ECB and the Fed have echoed these concerns. It was only a year ago that the Fed took an aggressive stance on US interest rates to counter inflation, yet the picture looks quite different now.

"On Wednesday evening, Federal Reserve chair Jerome Powell voiced concerns that the slowdown in US growth could even see the country enter a recession in 2020. He went on to say that the Fed’s current hiking cycle is over for now given that inflation is within range and the bigger picture of the US economy needs to be considered.

"A slowdown in the EU as well as China has also been the status quo in recent months, with Italy entering a recession, while manufacturing and GDP data from China have both dropped. While global growth slowdowns are a concern for the entire world economy, there is a silver lining: as sentiment in developed markets dwindles, investment and trade activity are being redirected to higher-yield environments such as South Africa.

"The rand celebrated the Fed’s move, gaining just over 2.5% during the week, extending its strengthening trend since the beginning of 2019. However, when it comes to the local economy and the local currency, significant risks still exist.

"The strength currently seen in the currency is mostly driven by weakness in major currencies such as the GBP and USD, and not because there has been a significant change in the outlook of the South African economic landscape. The JSE saw volumes topping R30bn yesterday, after a slow 2018, reaffirming the return of sentiment to the EM space.

"Data from the US this week saw the pending home sales drop by 2.2% m-o-m in December while jobless claims for the week accelerated to 253k from the previous 200k.

"Brexit is still the main focus in the EU and UK, with Brussels making it clear that no changes will be made to the current agreement, after the UK parliament voted on Tuesday to amend the Brexit treaty.

"Locally PPI contracted to 5.2% in December from the previous 6.8% while trade balance improved to a R17.17bn surplus in December from R3.29 bn. Attention will turn to the new vehicle sales and manufacturing PMI due for release today.

"The week ahead will see the monitoring of China-US trade relations and Brexit remain centre stage, while local politics will become more pertinent as we move closer to the election period.The rand is standing tall against the greenback with an intra-day range of R13.22 to R13.38 expected."

Wall Street stocks finished a banner month on a mostly positive note Thursday on optimism over US-China trade relations, while European bourses were pressured following tepid economic data. - AFP

ArcelorMittal SA is finalising its preliminary reviewed condensed consolidated financial statements for the year ended 31 December 2018.

It expects its loss per share to improve from R4.69 cents per share to a profit within a range of R1.20 and R1.30 per share (126% and 128% change) when compared to the prior year.

The profit per share includes a profit on the sale of ArcelorMittal South Africas investment in Macsteel International Holdings BV.

The financial information on which this trading statement is based has not been reviewed or audited by the companys external auditors.

Reinet Investments says the share buyback programme announced on 19 November 2018 was completed on 30 January 2019.Since the commencement of the programme on 20 November 2018, a total of 3.2 million shares have been repurchased at an average price of R208.51 per share, for a total consideration of R667.22, plus transaction costs.The shares repurchased will be held as treasury shares. - Sens

The rand opened Friday at R13.25/$ — more than 30c stronger than where it started the week.

With the currency pair flirting with the possibility of R13.22, which is not inconceivable if the euro/$ breaches 1.15. Yet, caution is warranted as geopolitical risks are still ostensible: little is known of the progress of ongoing US-China trade talks and the EU Commission is standing resolute on the Irish backstop provision. This should keep $/rand contained to its current trading range. -RMB

Asian markets mixed as China, US agree to further trade talks

After the much-anticipated gathering, Donald Trump hailed "tremendous progress" between the world's top two economies but warned the "hard deadline" of March 1 remained in place, after which US tariffs on billions of dollars of Chinese goods will be imposed.

For its part, Beijing said they held "candid, specific and fruitful" discussions and had agreed to increase cooperation on intellectual property - a major source of White House anger with China - and boost imports of US goods. - AFP