Markets WRAP: Rand closes at R14.21/$

The rand closed at R14.21 to the greenback on Thursday afternoon. The day's range was between R13.96 and R14.22. 

TreasuryONE said earlier that the rand was trading even softer today "as the sell off in the local currency continues with highs around the R14.20 mark". 

"Eskom continues to damper investor sentiment but the recent rally in the USD has not really helped matters for the ZAR today."

The ZAR is trading even softer today as the sell-off in the local currency continues with highs around the R14.20 mark, says TreasuryONE.

"Concerns over Eskom continues to damper investor sentiment but the recent rally in the USD has not really helped matters for the ZAR today.

"The EUR and GBP both tested lower today with EURUSD reaching a low of 1.1250 and the GBPUSD almost breaking 1.28. 

"The ZAR is being accompanied by other EMs like the Russian Ruble and Brazilian Real who are both trading in line with us.

"At the moment the ZAR is trading at R14.15 and seems to be settling in the R14.05 - R14.20 range."

Coca-Cola sold fewer drinks in the Americas in the fourth quarter despite a boost from zero-calorie offerings as rival Pepsi ramps up marketing spending.

Shares slipped in early trading. Unit case volume fell 1% in North America and 2% in Latin America in the quarter ended December 31. Still, Coke’s adjusted earnings per share matched what analysts had been expecting.

Key Insights

While the beverage giant has made progress with its Diet Coke and Coke Zero Sugar brands, the results show that a broader decline in soda consumption may still be weighing down performance. Coke, like its rivals in the beverage business, is also facing higher transportation costs.

Chief Executive Officer James Quincey has been banking on a pivot away from sugary soda at the world’s largest beverage company. He’s now under pressure to show his company’s big bet on UK coffee chain Costa can drive growth.

Investors will be listening on the call this morning for more details about the coffee strategy. Coke, like Pepsi, has raised prices to offset higher costs - moves the company said caused some consumer backlash in the quarter. In addition, it sold less juice, dairy and plant-based beverages.

The drinks business has become more competitive in the US, with sparkling water, bottled coffee and other options gaining popularity.

Market Reaction

Coke shares fell as much as 3% as of 07:11 in New York. The stock had gained 5% this year through Wednesday’s close, about half of the S&P 500’s rise. - Bloomberg

Dis-Chem plunged the most in nine months after South Africa’s second-biggest pharmacy chain said a continuing strike over wages will see full-year earnings come in below the company’s guided range.

Loss of income and additional costs linked to the labor unrest have amounted to R50 million to date, the Johannesburg-based company said in a statement on Thursday.

The strike, which mainly affects the wholesale operation, had a particular impact on the typically busy December period, when same-store sales fell 2.5%.

The shares slumped as much as 7.1%, the most since May 4, before paring the loss to be 1.1% lower by 09:48. Still, the stock has gained 42% since an initial public offering in 2016.

Dis-Chem is refusing to negotiate with the National Union of Public Service and Allied Workers, which initiated the strike starting in November, because the company says the labor group isn’t representative of the work force.

In any case, the call for a minimum wage of R12 500, annual increases of 12.5% for three years and a guaranteed bonus are “unreasonable considering the economic climate,” the retailer said. - Bloomberg

Andre Botha, Senior Dealer at TreasuryONE said while the rand looked 'rock solid' for most of January, it had since hit a major hurdle in terms of load shedding.

By 12:18, the rand was changing hands at R14.12. The day's range so far was between R13.96 and R14.19.

“As expected, the road leading up to the budget was always going to be a rocky one, but add the Eskom load-shedding problems to the mix and the road becomes impossibly steep.

"[Public Enterprises Minister] Pravin Gordhan yesterday stated that ... something drastic needs to be done to rectify the issue.

"President Cyril Ramaphosa is addressing parliament today to address the Eskom issue. This will surely cause some volatility in the markets and the rand is treading on shaky ground at the moment. For the first time in a while, local issues have overshadowed developments in the outside world.

"The rand headed above R14.00 for the first time since the start of January and even positive comments from President Donald Trump could not soften the blow that the rand took yesterday.

"We are in the final stretch as we are leading up to next week’s budget speech and maybe Ramaphosa could show the market a bit of love on this Valentine’s Day. 

"The rand is on a knife edge at the moment with huge two-way risks about, but exporters should perk their ears and start selling dollars at the current levels.”

After initially strengthening on Thursday, the local currency started to again weaken in the early afternoon to trade at R14.14 to the greenback. 

The rand opened at R14.06/$ and initially strengthened to R13.96/$, before again weakening. 

Analysts say the local currency will likely remain under pressure all day. 

Asian stocks mixed on trade talks wait-and-see

Adam Haigh, Bloomberg 

Asian stocks saw mixed trading Thursday as investors awaited the outcome of high-level trade talks between the US and China, and data on the Chinese economy.

The dollar held overnight gains, while Treasuries consolidated.Shares posted modest gains in Japan and Australia, and slipped in Hong Kong and Korea.

Mainland Chinese equities were little changed after a rally on the Shanghai Composite Index from January lows hit 10%.

The dollar steadied, while 10-year Treasury yields hovered around 2.7% following a report that showed US inflation remained contained.

There was little reaction to data showing that Japan’s economy rebounded somewhat in the fourth quarter, with the yen flat.

Trade talks 

President Donald Trump told reporters in the Oval Office on Wednesday that talks to resolve the US trade war with China are making good progress, helping to steady investor sentiment.

US inflation numbers bolstered the Federal Reserve’s decision to be patient on raising interest rates and with many major central banks talking cautiously about global growth, investor attention is firmly focused on the outlook for trade.

Elsewhere, oil continued its rebound from a two-week low, after Saudi Arabia pledged to deepen output cuts, and held most of those gains even after US crude stockpiles came in larger than anticipated.

The S&P 500 Index came off its highs Wednesday after Senator Marco Rubio announced a bill to tax buybacks on equal footing with dividends.

Sibanye looking at R1bn loss for 2018

Sibanye-Stillwater announced on Thursday in a trading statement that it expects to report an attributable loss of R1bn for 2018.

It said this was a significant improvement on the attributable loss of R4.4bn for the year ended 31 December 2017. 

Sibanye will release its results for the six months and year ended December 31 2018 on February 21.  

Rand breaks above R14/$ on back of load shedding, strong dollar

"The rand is trading weaker at 14.0600 as a combination of Eskom troubles, poor local retail sales data and a stronger dollar hit the rand.

"Parliament heard yesterday from Pravin Gordhan that Eskom was insolvent and needed a huge cash injection by April to stay afloat. Rolling blackouts continue and are impacting negatively on sentiment.

"Retail sales data for December released yesterday showed a contraction of 1.4% against an expected 2.5% expansion. The dollar recovered late yesterday to be trading at 1.1282 against the euro and 1.2869 against the pound.

"The euro is being impacted by poor economic data and political uncertainty in Spain. US stocks closed in the black, however, Asian stocks besides the Nikkei are softer this morning. Gold is trading lower this morning at $1 308.90 while Brent is higher at $64.03. - Brought to you by TreasuryONE

Eskom to implement stage 2 load shedding on Thursday

Eskom will implement stage 2 load shedding on Thursday between 08:00 and 22:00, the fifth consecutive day of rotational power cuts. 

Stage 2 load shedding allows for up to 2000 MW to be shed from the national grid. The power utility said in a statement there had been some improvement in generation performance and the replenishment of water and diesel supplies over Wednesday, when stage 3 load shedding was implemented.

The power system continues to be vulnerable. "Should Eskom experience significant unplanned generator trips, this could impact the magnitude and risk of load shedding," it said. It added that its operations were unaffected by Wednesday's national jobs strike by trade union federation Cosatu.