Markets WRAP: Rand closes at R14.33/$

TreasuryOne has said that it is not yet clear what has prompted the rand's fall.

"It most likely has to do with the rand being used as proxy. The pound is softer against the dollar but the ZAR is more than 3% weaker than other EM's over the past five days."

Bloomberg reports that UK Prime Minister has called off a crucial vote in Parliament on whether to approve her Brexit deal, after being warned she was on course for a devastating defeat, according to a person familiar with the matter.

TreasuryONE said in a snap comment that based on the news, the pound was fairly unmoved and was still trading around 1.27 to the dollar. By 13:57, the rand was trading at R14.23

The rand is under pressure at the moment and is around 2% weaker than most of its peers over the past week, TreasuryOne said in an afternoon note.

"The risk-off environment that global markets have seen lately are playing its role and as usual, it could be that the ZAR is being used as a proxy. Another reason could be that concerns are being raised over the effect of load shedding, how it will impact local growth and whether this will impact the views of credit ratings in the future.

"These are both just opinions that are being voiced at the moment as the ZAR is being sold off with no conclusive reason. Currently, ZAR is trading around 14.23." 

OVERVIEW: Stocks slid in Europe and Asia as US futures declined amid a potential escalation of tensions between Washington and Beijing, and after signs China’s economy remains under pressure. The euro advanced.

Chemical and construction companies led the retreat in the Stoxx Europe 600 Index as contracts on the Dow Jones, Nasdaq and S&P 500 indexes all languished in the red. The glum mood follows China’s weak data and news the country’s vice foreign minister summoned the US ambassador to protest the arrest of Huawei's CFO. The euro rallied on upbeat German trade data. The dollar drifted while Treasuries and European sovereign bonds were mixed.

Sentiment in financial markets has been fragile in recent weeks as traders gauge whether the Fed will slow its tightening path amid lingering trade war fears. Data has started to hint at slowing growth in the world’s top two economies, with signs that demand remains sluggish in China coming on the heels of a moderating US labor market.

Politics also remains high on the agenda, with UK Prime Minister Theresa May having to decide whether to risk a defeat or postpone a crucial parliamentary Brexit vote. The EU Court of Justice upped the stakes on Monday, saying the country could unilaterally choose to change tack and stay in the union. And there’s another change of personnel in the White House, as Chief of Staff John Kelly prepares to step down, removing a key force for West Wing discipline from President Donald Trump’s inner circle.

Elsewhere, India’s rupee fell with stocks and bonds as exit polls showed Prime Minister Narendra Modi’s party is set for tight electoral contests in key states before general elections next year. Oil held Friday’s rally triggered by OPEC and its allies agreeing on production cuts. - Bloomberg

REVIEW: ZAR opens on the back foot after Fitch caution

The rand rallied against the greenback during European trade on Friday, analysts from NKC Economics noted in a market update.

The South African currency recovered some of Thursday’s losses to trade below the R14/$ again following weaker-than-expected US employment figures which weakened the trade-weighted US dollar.

A tweet from President Trump that trade negotiations with China were “going well” also allayed some fears that the US-China trade war truce on thin ice, which support EM sentiment.

At close of local trade, ZAR quoted 0.6% stronger at R13.97/$, after trading in range of R13.93/$ - R14.18/$.

ZAR traded weaker over the weekend due to concerns over South Africa’s credit rating after Fitch warned about a proposed $7bn bailout for Eskom. Expected range today R14.00/$ - R14.30/$.

What to watch this week

Monday

JN GDP SA (01:50) 

UK Manufacturing Production (11:30) 

Nigeria 3Q18 GDP 

Tanzania CPI 

Tuesday

SA Non-Farm Payrolls (11:30) 

SA Mining Production (11:30) 

SA Manufacturing Prod NSA (13:00) 

US PPI Final Demand (15:30) 

Wednesday

JN PPI (01:50) 

SA CPI (10:00) 

SA Retail Sales Constant (13:00) 

US MBA Mortgage Applications (14:00) 

US CPI (15:30)  Ghana CPI 

Thursday

SA PPI (11:30) 

US Import Price Index (15:30) 

US Export Price Index (15:30) 

Friday

CH Retail Sales (04:00) 

US Industrial Production (16:15) 

US Capacity Utilization (16:15) 

US Markit US Manufacturing PMI (16:45) 

Botswana CPI 

Nigeria CPI 

Rand could reach year-end target of R14.20/$

The local unit’s one-week implied volatility against the US dollar is at its highest level in three months, bringing us ever closer to our year-end target of 14.20, which seemed outlandish at the beginning of last week, head of RMB's Global Market Research Nema Ramkhelawan-Bhana said in a market update.

The angst over an escalation in the trade war and concerns over the pace at which global growth can slow have overshadowed the subtle uptick in commodity prices, led by modest gains in the oil market after OPEC and its allies agreed to 1.2m bpd cut in production on Friday.

The extent of losses in US stocks and the rate at which US Treasuries are falling reflect the sheer panic that has washed over investors in recent weeks, despite the US economic backdrop remaining fairly resilient.

The Fed has certainly set the cat among the pigeons and, given the market’s sensitivity to its rhetoric, it is perhaps fortuitous that the central bank is now in a blackout period with no scheduled public speeches ahead of if policy decision next week. This should help to sustain USD/ZAR in a narrower trading range, barring an unseen risk-off event.

Local benchmark yields have staved off currency weakness to steady above 9% despite foreigners being net sellers of R1.4bn bonds towards the end of last week. Stocks fared no better with the exodus of cash from the JSE continuing unabated, offering little support to the rand. 

Even though traded volumes are thinning ahead of year-end, investors are positioning for risks into the new year. There are a few key events this week which might inform market sentiment, not least the UK House of Commons vote on Brexit on Tuesday where Prime Minister May is set to run the gauntlet against anti-Brexiteers.

The odds are stacked against the PM and a resounding defeat could unleash political mayhem in the UK. Dwindling levels of support from within her own party might convince May to delay the vote and instead seek concessions from her EU counterparts at the summit in Brussels on Thursday, though little will come it.

Given the current state of events, a second referendum might be in the offing, but there is much debate over the actual question that will be put to the British people. Bloomberg reports that the European Court of Justice will formally rule today on whether the UK can unilaterally call off its withdrawal by revoking Article 50.

The upshot is that heightened levels of geopolitical risk will be factored into the pricing of European assets this week, with the ECB’s final policy meeting of the year on Thursday unlikely to offer any respite as markets recalibrate their expectation of a first rate hike amid a slew of weak regional data.

This may well lead to a bout of euro weakness, knocking EUR/USD from its perch at 1.14 and feeding more broadly into risk assets.

The rand market did not take kindly to last week’s weaker-than-expected current account data and is likely to be skittish ahead of this week’s mining, manufacturing and retails sales releases, which will give us a first glimpse of fourth quarter economic activity.

November’s CPI and PPI data out later this week will provide further information on the shape of the inflation profile going into next year. Outside of the usual politicking, local event risk is limited.

After many heated policy debates, which have in some cases reframed the South African narrative, political tensions will ease somewhat this week as National Assembly is scheduled to hold its last sitting on Thursday.

That isn’t to say that important socioeconomic conversations will be suspended until next year, especially as South Africans contemplate a candlelit Christmas. It remains to be seen whether Eskom can indeed keep the lights on, Ramkhelawan-Bhana concluded.

Renewed trade war and Brexit concerns weigh on markets

The dollar is softer against the Euro at 1.1428 this morning after the poor payroll number on Friday, however it is firmer against emerging markets and the pound as renewed Trade war and Brexit concerns weigh on markets, TreasuryONE noted in a market snapshot on Monday morning.

The Rand is at 14.1500 while the Pound is at 1.2745.

Theresa May faces the crucial Brexit Parliamentary vote tomorrow and the feeling is that it will not turn out positive.

Wall Street closed lower again on Friday and US equity futures have opened lower this morning with Asian stocks also softer. US Treasury yields have fallen further after Friday’s poor data gave traction to the idea that the Fed will slow down the pace of interest rate hikes.

Chinese trade numbers showed lower imports and exports over the last month and the Yuan is trading weaker this morning. Gold touched $1250.00 this morning while Brent is up at $61.93 on the prospect of production cuts. 

Opening indicators:

USDZAR 13.8392

EURUSD 1.1336

EURZAR 15.6803

GBPUSD 1.2811

GBPZAR 17.7206

AUDZAR 10.0174

CADZAR 10.4647

CNYZAR 1.9917

ZARJPY 8.1741

CHFZAR 13.8628

Gold  1 223.30 

Plat 839.75 

Plad 1 130.80

Rhod  2 565.00 

Irid  1 470.00 

Ruth  268.00 

Copp  6 236.50 

Brent  59.69 

Gold ZAR 16 921.05 

Plat ZAR  11 615.67 

Rand trudges through early morning trade

The rand opened at R14.19/$ on Monday morning.

The sell-off in emerging markets is continuing to add pressure to the local currency, pushing it to R14.10/$ during international trading sessions, Bianca Botes of Peregrine Treasury Solutions noted in a market update.

"The local unit has been prone to volatility caused by global geopolitical elements and specifically the trade war.  

"While non-farm payrolls from the US came back softer than expected, this figure did little to bring the rand closer to the R14.00 level," she said.

UK GDP and manufacturing data as well as US Jobs Opening and Labour Turnover Survey will be released on Monday.

The rand remains on the back foot, with trade to range between R14.05/$ to R14.20/$.