Markets WRAP: Rand closes at R14.12/$

The rand closed at R14.12 to the greenback on Friday afternoon.

The day's range was between R14.06 to R14.19.

TreasuryONE said earlier that the rand was the big loser on Thursday as it broke through the R14.00 level with ease. The rand was the worst performing EM currency in early trade.

As the Trump administration touts progress on a deal with China to reshape the trading relationship, Beijing is said to be requesting a compromise over poultry. China is asking to ship products made from its chicken to the US in return for reopening its market for American poultry after four years, according to a person with knowledge of the US position in the talks.

Feet, wings and legs are on the table amid intense trade talks between the two countries that could result in a deal as early as March, the person said, asking not to be identified because negotiations are private. The US is asking Beijing to make substantial reforms on poultry to address longstanding concerns, the person said, adding that there is optimism about the discussions on the matter. Talks about poultry have come to light recently while soybeans had appeared to be front and center for the last few months.

On February 23, US Agriculture Secretary Sonny Perdue confirmed that poultry is among the commodities such as beef, rice, corn, ethanol and sorghum under discussion. For poultry, the US wants China to lift the nationwide ban and limit future restrictions to the region around an infected area, the person said.

China prohibited US poultry in 2015 due to an outbreak of highly pathogenic avian influenza. Nearly all other nationwide bans following the outbreak have been lifted.The USDA referred requests for comment to the Trade Representative’s office, which didn’t immediately respond. The Chinese Ministry of Commerce didn’t respond to a faxed request for comment.

China’s aim to ship cooked chicken to the US dates back to 2004, but the proposal has critics. The country is currently allowed to ship poultry to the US that is slaughtered in America or certain other countries. Now, as part of the negotiations, the country is asking for approval to cook its own chickens and export them to the US, according to the person.

Reopening China’s market may mean the US could start shipping chicken feet, wing tips and legs again.

Even before the ban, US exports to China had slid after the Asian country placed duties on American poultry in 2010. The duties were lifted a year ago but the ban remained intact. The market peaked at almost $722 million in 2008 and slipped to about $315 million in 2014, the year before the ban. As part of the trade talks, China has offered to make total purchases from the US worth $1.2 trillion over six years. As much as $30 billion of that total might come from agricultural commodities, Bloomberg News reported last week. - Bloomberg

The JSE, the operator of Africa’s largest stock exchange, will sharpen its trading and clearing systems from next month as the 132-year-old bourse responds to competition from a clutch of new market entrants.

“About 60% of our revenue comes from the cash-equity market and we are keeping a close eye on specifically one of the competitors playing in that space,” Chief Financial Officer Aarti Takoordeen said in an interview.

A2X Markets, which opened in 2017, is emerging as the most-serious threat to the JSE’s grip on the lion’s share of brokerage fees. It allows investors to trade in secondary listings for a growing line-up of companies - currently numbering 17 and including market giants Naspers, Sanlam and Standard Bank - at lower share-transacting costs.

Newcomers seeking to challenge the JSE still have a gulf to close: The exchange is among the world’s 20 largest by value and dealings on the new platforms remain a fraction of its turnover, for now. And fees are only about 40 South African cents per-trade higher than the fledgling firms in the chasing pack, said Takoordeen.

“It’s not all about price though,” she said. “The JSE is able to provide massive liquidity for trades, we have multiple order types, and we are constantly upgrading our technology, not to mention the know-how that we offer to clients.”

The JSE wants to set itself up as the most-preferred emerging-markets bourse, said Takoordeen.

April’s introduction of an integrated trading and clearing initiative will improve its functioning, increasing the ease of trade and possibly reduce costs further, she said after the exchange operator announced full-year earnings Thursday.

Revenue increased by 8% in 2018, despite below-average trading levels and fewer initial public offerings. “We had 12 IPOs last year, compared with 21 the year before, mostly as a result of political uncertainty and emerging markets not being in favor,” said Takoordeen.

“The plus was that we raised more market cap with the listings that did come through, compared with the previous year.” - Bloomberg

Andre Botha, Senior Dealer at TreasuryONE said in a morning note to clients that the rand is currently the worst performing emerging market currency.

"The rand was a big loser and we moved through the 14.0000 level as stop losses were triggered. The rand is at 14.0800 this morning, currently the worst performing EM currency," he said.

By 11:11, the rand was trading at R14.13 to the greenback.

"US Q4 GDP came out better than expected at 2.6% and we saw the dollar strengthen against most currencies as US interest rates and a call for an interest hike came back into focus.

"Wall Street closed lower across all three indices while Treasury yields were higher on the prospect of the Fed reviewing their 'patient' stance due to the growth numbers.

"The Fed has stated that policy will be data-driven and we now focus on the Non-Farm Payrolls numbers today. Further strong economic data out of the US could see another rate hike later this year. The euro has slipped to 1.1376 and the pound to 1.3264. The Trump Kim summit ended prematurely with no agreement due to the impasse on sanctions and nuclear disarmament.” 

The rand pushed through the R14.00 level with ease and faces a weakening trajectory, says Peregrine Treasury Solutions's Bianca Botes.

By 09:11, the rand was trading at R14.10 to the greenback.

"The past week has delivered nothing short of a turbulent global landscape as world leaders once again clash across the globe on various topics.

"It seems to be the status quo of late, as more geopolitical elements arise, ranging from diplomatic spats to trade tensions – all of which is to no benefit of the greater emerging market environment. 

"Emerging markets felt a slight sense of relief last week, as trade tensions between the US and China seemingly eased, but that feeling soon dissipated. The most prominent contributor to the renewed risk-aversion is the tension between India and Pakistan that reached critical levels during the course of the week.

"Indian warplanes are believed to have exercised military action on Pakistan for the first time since 1971. Market participants quickly fled the emerging market environment, moving their exposure to safe havens such as the USD and the JPY.

"The selloff in the emerging markets, and the subsequent recovery of the dollar from a three-week low quickly eroded the value of the rand, pushing it above the key R14.00 mark once again." 

The rand opened at 14.0800 this morning - currently the worst performing EM currency.

Gold is softer at $1 313.09 while Palladium is at $1 550.82.  

In a morning note to clients, TreasuryONE commented: "US Q4 came out better than expected at 2.6%, and we saw the dollar strengthen against most currencies as US interest rates came back into focus.  

"Wall Street closed lower across all three indices while Treasury yields were higher on the prospect of the Fed reviewing their 'patient' stance due to the growth numbers. The Fed has stated that policy will be data driven and we now focus on the Non-Farm Payrolls numbers." Strong economic data from the US could see another rate hike this year, the note said. 

A further factor was the Trump-Kim summit ending prematurely, with no agreement, due to the impasse on sanctions and nuclear disarmament, analysts at TreasuryONE added.

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