Markets WRAP: Rand closes at R14.5400/$

The rand closed at R14.5400/$ after trading in range of 14.4399-14.5834. 

The day's wrap: 

EURUSD 1.1424

EURZAR 16.6051

GBPUSD 1.2645

GBPZAR 18.3766

AUDZAR 10.2223

CADZAR 10.6474

CNYZAR 2.1164

ZARJPY 7.6122

CHFZAR 14.7435

R186 8.93%

US 10 Year 2.75%

JSE -0.98%

FTSE -1.23%

S&P 500 -1.56%

Gold 1 272.32 

Plat 790.30 

Plad 1 260.00 

Rhod 2 560.00 

Irid 1 470.00 

Ruth 268.00 

Copp 5 987.50 

Brent 53.33 

Gold ZAR 18 490.24 

Plat ZAR 11 485.19 

Brought to you by TreasuryONE

The biggest one-day rally in American equities since 2009 faded into memory as US stock-index futures tumbled alongside European shares on Thursday.

Treasuries climbed, as oil and the dollar gave up some of the previous session’s advances.Contracts on the S&P 500, Dow and Nasdaq all retreated, after the underlying benchmarks soared about 5 percent Wednesday on signs of robust consumer spending.

Losses in utility companies and carmakers dragged the Stoxx Europe 600 Index into the red. Asian shares were mixed, though Tokyo’s Topix Index posted the biggest advance in two years. Havens came back in vogue, with Treasury 10-year yields falling back below 2.8 percent, and gold climbing with the yen. European bonds were mixed.

The euphoria of equity investors has lessened from Wednesday, when strong economic data eased concern about both the tenure of the Federal Reserve chief and progress on U.S.-China trade talks. Even with the previous session’s surge, it’s still a horrible month for American stocks, with the S&P 500 down almost 11%.

Emerging markets are doing better, thanks to expectations of less aggressive tightening by the Fed. Elsewhere, WTI crude oil prices gave up a slice of the more than 8% gain from the previous day. - Bloomberg

China is the latest victim of the wild swings in oil prices that have roiled trading firms across the globe this year. Two top officials at Unipec, one of the country’s most powerful trading companies, were suspended this week following losses on bets related to oil prices in the second half of the year, according to people with knowledge of the matter. The parent company, state-run refining giant Sinopec, confirmed the move, saying only that it was related to work matters.

Trading companies from Azerbaijan to Russia and the US have been forced to overhaul their strategy, restructure operations or cut jobs in a year when oil surged to a 2014 high and then dramatically tumbled into a bear market within a matter of weeks.

Price spreads between crude grades in various regions, which are closely watched by traders seeking to take advantage of potential arbitrage opportunities, have also proven volatile and unpredictable. Just in late September, some traders were predicting that global oil prices would hit $100 a barrel over the following months. Their forecasts were based on the prospect of a supply crunch due to US sanctions on Iran that went into effect in November.

However, America’s surprise decision to grant waivers from its restrictions to some nations sparked a collapse in crude. Crude RangeChen Bo, the president of Unipec, and Zhan Qi, the Communist Party secretary, have been suspended, Sinopec spokesman Lyu Dapeng confirmed in a text message on Thursday, adding that it was due to “work reasons.” He declined to confirm whether the move was spurred by trading losses.

In September, Chen said that $60 to $80 a barrel was an acceptable range for oil prices. Brent, the benchmark for more than half the world’s crude, was trading near $53 a barrel on Thursday, after retreating from a four-year high of over $85 a barrel in early October. Shares in Sinopec, known officially as China Petroleum & Chemical Corp., tumbled as much as 7.1% in Shanghai on Thursday, before closing 6.8% lower.

“The market is closely watching for any details of the loss, including its size and how big an impact it may have on the overall operations of Unipec and Sinopec.” Li Li, an analyst with industry consultant ICIS China, said by phone from Shanghai. “So far, the confirmed information is very limited, but it also seems that the risk is controllable.”

US Shipments

Unipec’s purchases on behalf of Sinopec were a critical contributor to China becoming the biggest buyer of US crude, before shipments were stopped due to the trade war between the two countries. Chen, who headed the firm’s trading business, said in September that the company had put a plan to boost American imports on hold as it assesses the impact of the dispute.

While it stopped buying American supplies for use in Sinopec’s refineries, Unipec continued to lift cargoes to resell to other firms in what’s known as third-party trading. More recently, an easing of tensions has spurred more shipments. Earlier this year, Unipec - known officially as China International United Petroleum & Chemical Co. - was also embroiled in a dispute with Saudi Arabia, saying the producer’s prices were costly and cutting purchases just as it was boosting US imports.

Chen and Zhan, who was the highest ranking party official at the company, couldn’t be reached at the firm’s Beijing office on Thursday. Ling Yiqun, a vice president at Sinopec, will take over their duties, the people with knowledge of the reshuffle said. Chen Gang, a vice president at Unipec, will take over administrative responsibilities, according to Sinopec spokesman Lyu. - Bloomberg

US stock-index futures dropped on Thursday, retracing about a third of yesterday’s rally - the biggest since 2009. S&P 500 Index futures contracts expiring in March fell 1.9% and traded around 1.5% lower as of 10:20 in London.

The retreat came after the underlying gauge rallied 5% Wednesday. Dow Jones Industrial Average contracts were also down 1.5% while those on the Nasdaq 100 were down 1.8%.

In Europe, markets returned from their two-day Christmas break to reverse early gains. The Stoxx Europe 600 Index fell 0.6% with nearly all the sub-groups in the red, led by drops in utilities and real estate shares. With only three trading days left, equities in the region are heading for the worst year since the 2008 financial crisis.

Equity bulls flooded the stock market stateside on a flurry of developments on Wednesday:A senior White House official assured investors that the Federal Reserve chairman won’t get fired, an action Bloomberg News reported over the weekend that President Donald Trump had discussed. Trump made unusually direct comments on the stock market Tuesday, saying shares were presenting “a tremendous opportunity to buy”. Energy producers added a fillip to US stocks as oil rose above $46 a barrel in its strongest rally since 2016. A report late in the session that a US delegation will visit Beijing in early January for trade talks gave stocks a final push.

Wednesday’s rally is unlikely to be sustained as the “fundamentals haven’t shifted,” said Kyle Rodda, a Melbourne-based market analyst at IG Group Holdings. “Markets are still nervous about how financial markets and the global economy will go during a cyclical slowdown without central bank support,” he said by phone. History shows that not every miracle resurrection in equities is a dead-cat bounce, though it is true that strong rallies are common in prolonged market slumps. In eight previous bear markets, the S&P 500 has experienced rallies of greater than 2.5% more than 120 times as the benchmark plunged from peak to trough, according to data compiled by Bloomberg.

A US government shutdown and trade tensions between the world’s two largest economies are among reasons for investor caution.“You’re going to get this push and pull in markets where there’ll be big up days and big down days because no one really can get a good grasp on where things ought to be at this point in time,” Rodda said. - Bloomberg

Oil held its biggest gain in two years, after being swept up in a rebound across risk assets spurred by optimism about the global economy.

Futures in New York were little changed after surging 8.7% in the previous session. The S&P 500 Index equity gauge rebounded on Wednesday from the brink of a bear market on signs of robust consumer spending, easing concern about the tenure of the Federal Reserve chief and progress on US-China trade talks.

Meanwhile, expectations for declining American crude inventories also supported prices. Still, the rally represents only limited relief for oil, which is down almost 40% from a four-year high in October. Investors remain wary about the prospect of a supply glut, stoked by fears that output cuts pledged by OPEC and its allies won’t be enough to counter booming American shale output.

There are also lingering concerns that a trade war between the US and China - the world’s two biggest economies - could curb energy demand.

“Hopes of US-China trade progress impacted equity and crude markets, even though it’s a small step in the negotiation process", Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National, said by phone in Tokyo. “As trading volumes are thin, crude prices could continue to be volatile and react to every little thing through early January.”

West Texas Intermediate for February delivery traded 49 cents lower to $45.73 a barrel on the New York Mercantile Exchange at 16:26 in Tokyo. The contract advanced $3.69 to $46.22 on Wednesday. Total volume traded was about 31% above the 100-day average. Brent for February settlement dropped 65 cents to $53.82 a barrel on London’s ICE Futures Europe exchange. The contract rose $4 to $54.47 on Wednesday. The global benchmark crude traded at an $8.11 premium to WTI.

Oil jumped as all three major US stock indexes gained at least 4% on Wednesday, a feat last achieved in 2011. President Donald Trump a day earlier had said an equity rout that pulled the S&P 500 Index down 19.8% from a record offered a “tremendous opportunity to buy”. Additionally, a White House official assured investors that Fed Chairman Jerome Powell won’t get fired, an action Bloomberg News reported over the weekend that Trump had discussed.

Signs that US and China may be making progress to resolve their trade conflict also supported the rally in risk assets. A delegation led by Deputy US Trade Representative Jeffrey Gerrish is said to plan traveling to China in the week of January 7 for the first face-to-face discussion since the two countries agreed to a truce. That follows China’s announcement earlier this week on another round of tariff cuts.

Meanwhile, US crude inventories probably fell 3 million barrels last week, according to a Bloomberg survey of analysts. If Energy Information Administration data due Friday confirms that, it will be a fourth consecutive weekly decline in US stockpiles. - Bloomberg

OVERVIEW: Asian stocks climbed on Thursday after the biggest rally in US equities since 2009 offered relief from this month’s wrenching downturn, though gains were restrained outside of Japan.

Tokyo’s Topix Index closed almost 5% higher, leading the region, while Australian shares rallied 1.9%. Korean and Hong Kong benchmarks declined and US equity futures fluctuated, showing limited follow-through from the blow-out session on Wall Street. American benchmarks soared 5% or more Wednesday on signs of robust consumer spending, easing concern about the tenure of the Federal Reserve chief and progress on US-China trade talks.

Elsewhere, crude oil prices gave up a slice of the gains of more than 8% overnight. Ten-year Treasury yields are holding around 2.80%. The dollar surrendered some of yesterday’s advance. The yuan was little changed on the latest news on trade negotiations being scheduled for next month. The spurt in Japanese shares, the biggest in two years, follows a selloff that pushed the Topix gauge into a bear market on Tuesday. The benchmark is still valued at 11.8 times estimated earnings, near the cheapest level since 2012.

“The market right now is very bumpy,” Banny Lam, head of research at CEB International Investment, said on Bloomberg Television. Investors are sifting through “how many policy risks are actually on the table,” he said.

For Hong Kong stocks, Lam anticipates renewed declines over the coming quarter, before signs of rebounding Chinese growth stoke gains later in 2019. Just one of the S&P 500 members fell on Wednesday, when the Dow Jones Industrial Average jumped more than 1 050 points for its biggest-ever point gain.

Consumer shares paced the rally, with Amazon.com jumping 9.5% on record holiday sales. Each member of the FAANG cohort rallied at least 6.4%.

Nike and Apple rose more than 7%. Yet it’s still a horrible month for US stocks, with the S&P 500 down almost 11%. Japan’s Topix is even worse, with a 14% slide.

Emerging markets have done better, thanks to expectations of less aggressive tightening by the Fed. The Shanghai Composite is off less than 4%, for example. And China’s yuan, along with most major Asian currencies, is up against the dollar this month.

“We could still be choppy here and in a bit of a trading range” for stocks, Matt Miskin, a market strategist at John Hancock Financial Services, told Bloomberg Radio. “You’re getting whipsawed from all this different information hitting the markets,” he said.

For the S&P 500, he said “we do not see a real sustainable breakout past the prior highs in the near term.

”A report that a US government delegation will travel to Beijing in two weeks to hold trade talks gave stocks a final push higher on Wall Street. Investors had earlier welcomed White House adviser Kevin Hassett’s assurance that Federal Reserve Chairman Jerome Powell’s job is “100%” safe.

Futures on European equity benchmarks were mixed in Asia. Trading in the UK and Europe will resume after a two-day holiday. - Bloomberg

The rand opened the day close to the R14.50 level, after it slipped against the dollar on Monday as the sell-off in stocks caused a risk-off environment across the board, TreasuryONE said in a morning note.

"The rand flirted with the R14.60 level for most of the trading session. However, yesterday on Wall Street saw all three major indexes stateside posting gains of more than 4.9%.

"This was followed through on the Asian side this morning and we have seen the rand opening up close to the R14.50 level. The key is for this momentum to be maintained and with lower than normal liquidity we could see the rand posting some gains should the sentiment hold."

At 08:21, the rand was changing hands at R14.54 to the greenback.