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13 Dec 2018
13 Dec 2018
OVERVIEW: Stocks in Europe surrendered early gains while US futures and Asian equities climbed as investors weighed the latest developments in America-China trade relations. The pound added to its advance after the UK’s prime minister survived an attempted ouster.
Declines in energy shares offset gains in raw materials as the Stoxx Europe 600 Index erased an early advance to turn lower. Hong Kong and Chinese stocks outperformed as equities across Asia continued their rebound. Futures on the S&P 500 rose after news broke that Chinese importers have bought US soybeans, though they pared gains.
The euro was steady as the ECB was said to be lowering its inflation forecast for 2019 in an outlook due Thursday, while the dollar was little changed. Treasuries and European bonds gained, led by a rally in Italy’s securities after the country offered a significant concession to the European Commission on its deficit target.
Investors are studying the latest moves in the global trade tug of war, as China resumed purchases of American soybeans and reiterated its officials were in close contact with US counterparts on negotiating details of a broader deal. Worries for global relations remain. The Asian nation detained a second citizen of Canada for questioning, further heightening tensions between those two countries.
Trump administration officials on Wednesday signaled that Beijing will have to do more to end the tariff war. In the UK, gilts climbed and the FTSE 100 edged lower after May won a vote of confidence in her leadership of the Conservative Party, though it’s likely to be only a temporary reprieve as the embattled premier faces hardened opposition to her Brexit deal.
Elsewhere, WTI oil slipped below $51 a barrel as a smaller-than-expected decline in US crude stockpiles renewed fears a global glut. - Bloomberg
13 Dec 2018
Andre Botha, Senior Currency Dealer at TreasuryONE said in a morning note to clients, “Just as a show of how fickle the sentiment is at the moment, the news that trade tensions between the US and China might be easing, on the back of the Huawei CFO being granted bail, brought about a sigh of relief for EM markets.
"Taking that into account plus a firmer euro from Italy submitting a revised budget yesterday, the world looks a bit different than it did at the start of the week. Overnight, we saw British Prime Minister Theresa May surviving a vote of no-confidence within the Tory-party, which will go a long way in Minister May pushing ahead in trying to renegotiate Brexit terms with the EU.
"This has brought a little bit of calm to the market as well, but it is not the last we have seen of Brexit volatility.The renewed buoyancy in the market has filtered through into the equity markets with most markets ending the day in the green. This renewed risk talking behaviour could see the rand testing the R14.00 level against the dollar.”
13 Dec 2018
Rate hikes likely in 2019
Nema Ramkhelawan-Bhana and Elena Ilkova of RMB Global Research shared views on the rand's overnight strength:
The primary catalysts for the overnight change have been- improved sentiment over US-Sino trade negotiations after news that China had resumed imports of US soybeans; Theresa’s May’s survival of a vote of no confidence providing a temporary reprieve to the besieged Prime Minister; and the deceleration in US headline inflation and more crucially the relative stability in core inflation which would allow the Fed room to pause if activity begins to slow sharply.
It’s slightly more difficult to interpret the impact of local data on the rand market – yesterday in particular – with SA CPI coming in a tad higher than expected at 5.2% y/y in November against the forecasted 5.1% y/y while retail sales data surprised to the upside.
Today’s PPI’s print shouldn’t provoke a hyperbolic response.
USD/ZAR will continue to meander in a narrow trading range and nudge lower for as long as risk sentiment holds.
Despite lingering concerns over the state’s contingent liabilities, the market took the management drama at SAA and Moody’s comment around the mooted R100bn Eskom debt transfer to the government’s balance sheet in its stride.
It’s possible that a transfer of this magnitude is neutral for the government’s credit profile, but there is no certainty. As part of its sovereign rating considerations, the agency believes this move would increase South Africa's debt-to-GDP ratio by around 2% from the 55.8% projected for FY19 and raise debt service costs.
However, if this action is accompanied by other measures that stabilise Eskom’s finances (such as cost savings and higher tariffs), the future contingent liability risk for the rest of Eskom’s debt will be reduced. Moody’s also stressed that a decision to transfer debt comes with moral hazard, and the power producer has already twice delayed the release of its turnaround plan, which reflects both the complexity of its design and the likely implementation challenges.
There is a spate of central bank decisions today – monetary authorities in the eurozone, Philippines, Turkey and Peru will make their pronouncements on interest rates at various points in the day.
The ECB will confirm the end of its net asset purchases today but is likely to keep its options open about the future path of policy given the downside risks to economic growth.
Any indication that rate hikes are being pushed out further, implying a wider EU-US rate differential, would exert downward pressure on EUR/USD and take the shine off the rand. The EM grouping is expected to maintain their respective policy rates at current levels, with Turkey specifically hiking aggressively in 3Q18 to stem persistent currency weakness.
In adopting a more dovish tone, the Fed has somewhat alleviated pressure on EM central banks to tighten policy quickly, but authorities will still need to assess domestic factors against the global backdrop before making any judgements on the most optimal interest rate path.
For the SARB, anchoring inflation expectations is of the utmost importance and, given the anticipated rise in the inflation profile next year, is likely to hike rates by another 25bp in 1Q19.
13 Dec 2018
May survives no confidence vote, US-China trade tensions ease
Theresa May survived a no-confidence vote yesterday within her own party when she won 200 of the 317 Conservative’s votes in a secret ballot and this allowed the pound to maintain gains from yesterday, TreasuryONE noted in a market snapshot.
On the other hand, the EUR also tracked higher as Italy submitted a revised budget to the EU that does show a lower deficit target.
Equities in Asia were up this morning as signs of easing trade tensions between China and the US helped to increase the appetite for stocks after the US markets also closed higher.
Out of a ZAR perspective, the rand was over 1% stronger yesterday as it broke below 14.10 late yesterday evening on the back of the weaker dollar but is back around the 14.10 handle.
Opening indicators from TreasuryONE:
USDZAR 14.1154
EURUSD 1.1365
EURZAR 16.0355
GBPUSD 1.2611
GBPZAR 17.7920
AUDZAR 10.1947
CADZAR 10.5617
CNYZAR 2.0524
ZARJPY 8.0310
CHFZAR 14.1906
Gold 1 244.04
Plat 801.49
Plad 1 264.70
Rhod 2 560.00
Irid 1 470.00
Ruth 268.00
Copp 6 144.75
Brent 60.43
Gold ZAR 17 551.29
Plat ZAR 11 307.66
13 Dec 2018
Producer inflation to be released
Producer Price Inflation will be released on Wednesday. NKC Economics forecasts PPI to decline marginally to 6.8% y-o-y in
November from 6.9% y-o-y in October.
NKC also attributes the rand's gains on Wednesday to improved emerging market sentiment, following signs that US-China trade tensions are easing.
"The rand was also supported by stronger-than-expected South African retail sales figures for October," NKC noted.
At close of local trade, ZAR quoted 0.8% stronger at R14.16/$, after trading in range of R14.11/$ - R14.36/$. Expected range today R13.95/$ - R14.25/$.
13 Dec 2018
Rand could test R14/$ level
The rand gained close to 2% on Wednesday's trade session, Bianca Botes corporate treasury manager at Peregrine Treasury Solutions noted in a market update.
The local unit opened at R14.11/$ on Thursday and could test the R14/$ level, she said.
Local PPI and US initial jobless claims data is expected to be released on Thursday.
The consumer inflation data of 5.2% which was released yesterday indicates that the Reserve bank could continue to raise rates in 2019, Botes added. Retail figures also surprised, coming in at 2.2% for October. This shows consumers are heading back to shopping aisles, Botes said.
