Markets WRAP: Rand closes at R15.34/$

The rand closed at R15.34/$ on Tuesday. Here's how the day wrapped up: 

USDZAR 15.3440

EURUSD 1.1089

EURZAR 17.0064

GBPUSD 1.2137

GBPZAR 18.6137

AUDZAR 10.4011

CADZAR 11.5129

CNYZAR 2.1719

ZARJPY 6.9261

CHFZAR 15.6573

R186 8.39%

US 10 Year 1.56%

JSE -0.42%

FTSE -0.62%S&P 500 -0.40%

Gold 1 503.20 

Plat 847.57 

Plad 1 487.71 

Rhod 3 920.00 

Irid 1 470.00 

Ruth 248.00 

Copp 5 697.60 

Brent 59.13 Gold

ZAR 23 054.32 Plat ZAR 12 999.01 

Brought to you by TreasuryONE

OVERVIEW: US index futures edged higher with stocks in Europe as investors digested developments in trade talks and comments from a Federal Reserve official about the strength of the biggest economy. Treasuries climbed and a gauge of the dollar held close to the year’s high.

The Stoxx Europe 600 Index advanced after fluctuating earlier. Contracts on three main American equity indexes all struggled for traction after the underlying benchmarks rose on Monday, when the US commerce secretary said the nation will delay restrictions on some operations of China’s Huawei Technologies.

Stocks advanced across Asia except for markets in Hong Kong and Shanghai.

Government bonds climbed in Europe except for Italy’s, where leaders may force an early election. The pound slipped after the prime minister announced a proposal to break the deadlock in the Brexit deal with the European Union. Treasuries recovered from Monday declines when Fed Bank of Boston President Eric Rosengren pushed back against further rate cuts. A Bloomberg dollar index steadied, close to its 2019 record.

The latest headlines on global trade and interest rates may provide some reprieve for investors spooked by tumbling bond yields. The US decision on Huawei was seen as encouraging for the long-awaited trade pact between the world’s two largest economies.

Still, the Chinese company said the temporary relief doesn’t change the fact that it’s been treated “unjustly".

Meanwhile, Trump’s top economic adviser, Larry Kudlow, will speak with business leaders this week amid concerns about the rising odds for a recession, the trade war and whipsawing markets. That comes before Fed Chairman Jerome Powell’s remarks about the challenges for monetary policy at the Jackson Hole symposium Friday.

“Our thesis maintains that over the next six months equity markets should do better, really mainly underpinned by the lower interest rates around the world,” Jun Bei Liu, a portfolio manager at Tribeca Investment Partners in Sydney, told Bloomberg TV. “Of course, there’s a few issues that arise. One is that the valuations seem incredibly high. And the trade conflict is another uncertainty at this point.”

Elsewhere, there was muted reaction after China made borrowing costs cheaper for companies with the introduction of a revamped market benchmark rate. Oil futures were steady.

Here are the main moves in markets:

Stocks

Futures on the S&P 500 Index gained 0.1% as of 06:23 New York time. The Stoxx Europe 600 Index advanced 0.2%. The MSCI Asia Pacific Index increased 0.6%. Hong Kong’s Hang Seng Index fell 0.2%.

Currencies

The Bloomberg Dollar Spot Index dipped 0.1%. The British pound declined 0.2%. The euro advanced less than 0.05% to $1.1081. The Japanese yen strengthened 0.3% to 106.36 per dollar.

Bonds

The yield on 10-year Treasuries decreased four basis points to 1.56%. Britain’s 10-year yield declined three basis points to 0.443%. Germany’s 10-year yield fell four basis points to -0.69%. Italy’s 10-year yield increased five basis points to 1.484%.

Commodities

Gold advanced 0.5% to $1,503.59 an ounce. LME copper decreased 0.7% to $5,733.50 per metric ton. West Texas Intermediate crude gained 0.1% to $56.29 a barrel. - Bloomberg

Risky business for the rand

It is possible for the rand to hit the R15.50/$ mark on Tuesday, TreasuryONE senior dealer Andre Botha noted in a market update.

"The rand traded as high as R15.50 in the evening session but is currently trading back at the R15.40 level.

"The momentum is not in favour of the rand and with the market already testing the R15.50 level it would be no surprise should the rand test that level again today," he said. 

The rand, along with other emerging markets has been experiencing weakness due to the "undeniable risks" in the market, Botha explained. 

"This week these risks are a bit elevated with the release of the US Fed Minutes as well as the speech by Fed Chair Powell on Friday at Jackson Hole.

"This coupled with the ongoing trade saga has led the markets to sell of EM currencies. The dollar has remained on the front foot which will also impact EM currencies negatively," Botha said.

Further, tensions between US President Donald Trump calling for a rate cut of 1% by the Fed, could also affect markets in the long run, Botha warned.

"The markets are all over the place with stock markets in the green but other risky assets like EM currencies in the Red.

"This uncertainty does not bode well for risky assets and we can expect a bumpy ride for the year," he said.

The rand's movements will also be impacted by a credit rating action from Moody's. "Some market players have suggested that a rating downgrade has been priced in and that one of the main drivers for the rand to go weaker," Botha said.

"The rand is currently a passenger in the global sentiment train and news events from abroad will affect the direction of the rand," he commented.

The rand is still under pressure as it moved to test the R15.50/$ in overnight trade. This as the dollar rallied to a three-week high on growing expectation for stimulus from other central banks, said Peregrine Treasury Solutions's Bianca Botes.

By 07:28, the rand was trading at R15.43 to the greenback.

"While overall risk sentiment has seen an improvement, the rally in the USD has caused the rand to weaken rather than strengthen. All eyes are on the global symposium of central bankers that kicks off on Friday," said Botes.

"As the focus will fall on comments from governors and chairs regarding monetary policy and interest rates moving forward. 

"There is little data of significance due for release today, with only the EU month-on-month construction output being of interest.

"We start the day at R15.43/$, R17.08/€ and R18.70/£. The focus remains on recession fears and potential stimulus by central banks across the globe, while the rand continues to remain under pressure."