Markets WRAP: Rand closes at R14.20/$, averaging between R14.18 and R14.41

OVERVIEW: U.S. stocks were mixed as investors weighed the outlook for elections this week along with signals that a trade deal between the world’s biggest economies remains a ways off. Oil gained for the first time in a week.

Apple led technology shares lower after a report it won’t boost iPhone production. The Nasdaq 100 Index paced declines among major benchmarks, with Facebook, Amazon and Netflix all lower. A rally in financial and energy shares lifted the Dow Jones Industrial Average. Treasury yields edged lower. The Stoxx Europe 600 Index stayed in the green in relatively thin trading.

Politics and central banks loom large in a busy week for global markets. U.S. congressional elections, seen as a referendum on the policies of President Donald Trump, take place Tuesday.

Investors also are on alert for any trade developments after White House economic adviser Larry Kudlow last week downplayed the potential for a quick deal between the U.S. and China. Up ahead is the Federal Reserve policy meeting Thursday, when officials are expected to keep the benchmark rate unchanged but give clues for moves into 2019.

“Early this week here, people are trying to resolve some of the uncertainty with this election,” said Jerry Braakman, the chief investment officer at Santa Ana, California-based First American Trust. “There’s not a great deal of value anywhere in the market, and that’s why were seeing increased volatility.

”Elsewhere, crude climbed as sanctions on Iran oil snapped back into place Monday. The pound strengthened a third day in four on signs of further progress in Brexit negotiations. Emerging-market currencies and shares fell after stocks in Asia closed mostly lower. Argentina’s central bank said it will extend the use of a currency trading band into next year and will likely manage peso fluctuations less than at present. - Bloomberg

Oil traded near a six-month low as the prospects of a tight global market at the end of the year further receded after the U.S. softened the restart of sanctions against Iran. Crude advanced 0.6% in New York. Sanctions against Iran were reimposed on Monday, though eight countries were allowed to continue temporarily buying some crude from the country, according to U.S. Secretary of State Michael Pompeo.

Hedge funds reduced bullish bets for an eighth week as extra supplies from OPEC and the U.S. assuaged concerns of a potential shortfall.

“The U.S. has done a U-turn as compared with its previous announcements” on Iran, said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “It thus comes as no surprise that speculators are squaring their net long positions in crude oil, which is likewise weighing on prices.”

Oil slid from a four-year high last month as speculation grew that Washington would grant waivers on Iranian sanctions to lower pump prices ahead of the U.S. midterm elections, while other producers in the Organisation of Petroleum Exporting Countries pledged to offset any supply gaps. Meanwhile, a trade war between the world’s two biggest economies stoked concern that fuel demand would suffer even as President Donald Trump said he wants to reach a pact with China.

West Texas Intermediate crude for December delivery dropped as much as 1% to $62.52 a barrel on the New York Mercantile Exchange, the lowest since April 9, before recovering 0.6% to $63.52 as of 13:51 London time. Futures slid 6.6% last week. Total volume traded Monday was about 4% above the 100-day average.

Brent futures for January settlement rose 71 cents to $73.54 a barrel on the London-based ICE Futures Europe exchange. Prices fell 6.2% last week, the biggest weekly decline in nine months. The global benchmark crude traded at a $9.86 premium to WTI for the same month. Pompeo told reporters on Monday that China, India, Japan, South Korea, Taiwan, Italy, Greece and Turkey have been granted waivers that will allow the countries to keep buying Iranian oil temporarily. Iran can either change its behavior or see its economy collapse, he said. - Bloomberg

OVERVIEW: U.S. equity futures drifted, stocks in Europe struggled for traction and Asian shares declined on Monday as optimism over a potential America-China trade deal receded.

Treasuries edged higher, while the pound strengthened amid signs the U.K. and European Union are closer to breaking a Brexit deadlock.

Telecom and utilities companies were among the biggest advancers as the Stoxx Europe 600 Index eventually edged up, though futures on the Dow and S&P 500 were slightly weaker.

Shares in Asia slid following Friday’s rally and after White House economic adviser Larry Kudlow downplayed the potential for a quick deal with China. Treasury yields pulled back after rising on Friday.

The pound was firmer on news of further progress in Brexit negotiations, and the dollar nudged higher against most of its other major peers. Politics and central banks loom large in a busy week for global markets. U.S. congressional elections, seen as a referendum on the policies of President Donald Trump, take place Tuesday.

On the Brexit front, Prime Minister Theresa May is due to discuss the latest proposals with her cabinet the same day. Investors then turn their eyes to the Fed’s policy meeting. Though officials are expected to keep the benchmark rate unchanged at their penultimate 2018 meeting Thursday, clues will be sought for moves into 2019.

Elsewhere, the yen barely budged as Bank of Japan Governor Haruhiko Kuroda hinted Monday that he wants to normalise monetary policy once the central bank gets closer to its price goal. Crude was on track for a sixth day of declines even as sanctions on Iran oil snapped back into place Monday. Emerging-market currencies and shares fell. The rand was trading at R14.37 by 13:42. - Bloomberg

Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM said in a morning note to clients, “The number of different risk events for global markets this week means that volatility in the rand is something that investors should not rule out of the equation. 

"There are some important economic releases from the side of South Africa, including the latest Foreign Exchange Reserves release and the Manufacturing Production data but the expectation is that global developments will mostly dictate movements in emerging market assets this week. 

"The early hours of trading on Monday have already showed how sensitive emerging market currencies have become to newsflow regarding trade tensions between the United States and China, with a number of different emerging market currencies reversing their gains at the end of last week after White House Economic Advisor Larry Kudlow conflicted reports that President Trump had asked his cabinet to draw up a trade agreement with China. 

"Such developments are something that is very unpredictable for investors to guard themselves against, which is a major reason behind why investors have mostly become 'risk off' over the past couple of months towards emerging markets because these external drivers are something that can not be predicted. 

"This week is widely expected to be another wild one for emerging markets with the Federal Reserve meeting and upcoming US mid-term elections something that investors will monitor very closely. While mid-term elections are generally not seen as a massive one for financial markets, the ongoing uncertain speculations that have surrounded the Trump administration means that investors are at risk to being more reactive to this event. 

"The results of Tuesday’s U.S. mid-term elections will decide which party controls the House and Senate. According to most polling data, the Democrats are likely to take control over the House with the Republicans retaining the majority in the Senate. Such an outcome would limit Trump’s power in passing policies, whether it’s fiscal or trade, which is why emerging markets will be at risk to volatility as a result of investors re-shuffling their positions.

"Market’s worst-case scenario would be the Democrats controlling both houses as future fiscal policy trajectory becomes uncertain, and the probability of Trump’s impeachment intensifies. This is a long-winded scenario that would be conceived as a major risk for global markets, but it is also very much of a 'hypothetical outcome' and not something investors will be concerned about today.”

Andre Botha, Senior Currency Dealer at TreasuryONE said in a morning note, “The Rand hardly reacted to the better than expected US employment numbers that were released on Friday, despite the US dollar ending on the front foot. The resilience in the Rand is quite heartening, but there are a few potential events on the horizon that might scupper the recent Rand resilience. We have seen US Treasury yields ending the week higher, and we only have to go back a couple of months where US Treasury yields were the buzzword. The longer the rise in yields continue, the greater the pressure on EM's as the US will become a favoured destination for investors.

"The Fed has a meeting this week but is expected to keep rates on hold eyeing the December meeting to increase rates again. The expected rate hike and future rate hikes from the positive US employment numbers have also had an effect on the US stock markets as they ended the week in the red.

"When stock markets end in the red, it usually means risk off and EM's could come under pressure. The US mid-term elections start tomorrow which could potentially have the power to shift markets quite rapidly.

"With the outcome of the election being in the balance, we expect markets to tread carefully before then and we can expect sideways trade today. Therefore we can deduct from the above that the Rand will take its cue from international events this week. This week has the potential to be quite bumpy in the latter part of the week, but today we expect markets to be cautious.”

ABSA board changes 

ABSA has appointed Charles Russin as chief executive of the corporate and investment bank. 

Paul O'Flaherty is appointed as his successor to the position of chief executive of engineering services. O'Flaherty will resign from his position as non-executive director of ABSA Group and ABSA Bank.

Both these appointments are subject to regulatory approval, the notice to shareholders read.

ABSA's share which opened at R158.93 on Monday morning, was trading slightly stronger at R159 by by 09:50.

ABSA board changes 

ABSA has appointed Charles Russin as chief executive of the corporate and investment bank. 

Paul O'Flaherty is appointed as his successor to the position of chief executive of engineering services. O'Flaherty will resign from his position as non-executive director of ABSA Group and ABSA Bank.

Both these appointments are subject to regulatory approval, the notice to shareholders read.

ABSA's share which opened at R158.93 on Monday morning, was trading slightly stronger at R159 by by 09:50.

Analysts from NKC Economics expect the rand to trade within a range of R14.20/$ - R14.40/$.

Expected data releases this week and NKC expectations:

Today – Eurozone investor confidence data for November. We look for the US ISM non-manufacturing index to decline to 59.4 in October following a 3.1-point advance to 61.6 in September.

Tuesday – US Jolts job openings numbers for September.

Wednesday – Gross gold & forex data for October.

Thursday – We expect the decline in mining production growth to decrease to -3.4% y-o-y in September, from -9.1% y-o-y in August. We forecast that manufacturing production will improve to 3.1% y-o-y in September from 1.1% y-o-y in August. We look for US initial jobless claims to be little changed at 215k, up a touch from 214k. Ongoing volatility related Hurricane Michael is likely to put upward pressure on claims in Florida and Georgia.

Rand early trade slightly weaker

The rand started the day slightly weaker at R14.36/$, compared to gains made on Friday.

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, said the local currency is set for a correction which will range between R14.22 and R14.48 to the greenback.

The Standard Bank PMI as well as US non-manufacturing data is due for release.

The US federal reserve bank will also be meeting this week, but is not expected to hike until the meeting in December, according to a market update from TreasuryONE.

"The US midterm elections are this week and could have a strong bearing on markets," the update read.

"The rand is holding steady despite the stronger dollar and has appreciated against the euro and pound.

"Gold still above $1330.00 while Brent is down at $72.40. Asian stocks are down and the Yuan is trading weaker."

Other market indicators from TreasuryONE:

USDZAR 14.3395

EURUSD 1.1384

EURZAR 16.3159

GBPUSD 1.2987

GBPZAR 18.6134

AUDZAR 10.3035

CADZAR 10.9340

CNYZAR 2.0724

ZARJPY 7.8893

CHFZAR 14.2653

Gold  1 232.37 

Plat  865.99 

Plad 1 121.00 

Rhod  2 415.00 

Irid  1 470.00 

Ruth  263.00 

Copp  6 319.00 

Brent  72.40 

Gold ZAR 17 666.64 

Plat ZAR 12 414.40