Markets WRAP: Rand closes at R14.21/$

The rand closed at R14.21 to the dollar on Friday afternoon.

The day's range was between R14.35 and R14.48, occasionally rising in the overnight session to R14.30, with key support and resistance at R14.30 and R14.50.

While the rand has been trading stronger overnight, the news confirming that the US has officially raised tariffs to 25% has hit markets.

President Donald Trump boosted tariffs Friday on $200 billion in goods from China and was preparing more in his most dramatic steps yet to extract trade concessions, saying there’s “no need to rush” a deal even though the uncertainty is roiling markets and clouding the global economy. China said it will be forced to retaliate, though the government hadn’t specified how as of 18:45 in Beijing.

The move came after discussions between President Xi Jinping’s top trade envoy and his US counterparts in Washington made little progress on Thursday, with the mood around them downbeat, according to people familiar with the talks. The negotiations were due to resume on Friday morning Washington time.

“Talks with China continue in a very congenial manner - there is absolutely no need to rush,” the US president said on Twitter on Friday. “In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal!”

Asian stocks whipsawed in heavy trading. Chinese state-backed funds were reported jumping into the local market after shares slumped, and the Shanghai Composite closed up 3.1%. S&P 500 futures were lower after Trump’s series of morning trade tweets. The fresh wave of tariffs marked a sharp reversal from just last week, when US officials expressed optimism that a pact was within reach.

Ahead of the talks on Thursday, Trump also said the US would go ahead with preparations to impose 25% tariffs on a further $325 billion in goods from China, raising the prospect of all of China’s goods exports to the US - which were worth about $540 billion last year - being subject to new import duties. Such a move would take weeks to deploy. But it would have significant repercussions for the US, Chinese and global economies.

Economists at Moody’s Analytics said in a report this week that an all-out trade conflagration between the world’s two-largest economies risked tipping the US economy into recession by the end of 2020 just as voters go to the polls in the US. The world’s two largest economies will both get pinched.

Bloomberg Economics calculates the new increase will raise the drag on Chinese growth to 0.9 percentage point from 0.5 percentage point. The International Monetary Fund estimates the pullback on the US expansion at about 0.2 point, and potentially more if there’s a blow to markets and confidence. The new tariffs that took effect at 00:01 Washington time Friday raise from 10% to 25% the duties on more than 5 700 different product categories from China - ranging from cooked vegetables to Christmas lights and highchairs for babies. US officials have said the new duties - introduced on just five days’ notice - will not apply to goods already on boats headed for American shores.

A 25% tariff is already in place on a further $50 billion in imports from China. Some American industries were quick to decry Trump’s decision, which will hurt some of his key political constituencies, including farmers and manufacturers. The tariffs will “suppress job gains for the industry by as much as 400 000 over 10 years. It will also invite China to hit back at American businesses, farmers, communities, and families,” said Kip Eideberg, vice president of government affairs for the Association of Equipment Manufacturers.

Meanwhile, talks were expected to continue. Chinese Vice Premier Liu He huddled with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington on Thursday for about 90 minutes of talks before breaking and reconvening later for a working dinner that broke up around 20:40 Washington time.

Though talks are set to resume Friday, some close observers said they were not hopeful for any meaningful breakthroughs. One person familiar with the discussions said that US officials were unsure whether Liu had the authority to make any meaningful commitments. It was also unclear whether China had resolved the internal debates that had led to last week’s rescinding of prior commitments to enshrine reforms agreed in Chinese law.

Ahead of the latest round of meetings, Liu told Chinese state media he was coming to Washington under pressure but “with sincerity” and warned that a move to raise tariffs by the US starting Friday was not a solution.

Earlier on Thursday, Trump sought to calm US financial markets after he insisted it was still possible to reach a deal this week, even as he reiterated plans to raise tariffs on Chinese goods. Trump, speaking at an event in Washington, also said he may hold a phone call with his Chinese counterpart, Xi. No call between the two leaders had taken place by late Thursday nor had one been scheduled, according to a senior Trump administration official. - Bloomberg

With 80% of the ballots counted, the ANC has about 57% of the national vote. A win of between 55% and 60% is expected to boost Ramaphosa’s position within the party and his ability to implement key changes.

Here is how the reform optimism is playing out in market.

African Equity Empowerment Investments released its unaudited interim results for the period ended 28 February 2019 on Thursday evening. 

The company, part of Cape Town businessman Iqbal Survé's Sekunjalo stable, reported a 31% increase in revenue from a restated R604m to R792m. It also reported that headline earnings per share increased by 37% from 28.32c to 38.67c. 

In a statement the group said it had "delivered excellent revenue growth resulting from strong contributions from all its underlying investments for the interim period".

AEEI also announced that AYO Technology Solutions, which it previously classed as an associate, was in fact a subsidiary, requiring a restatement. 

In early April the JSE ordered AYO to engage with its external auditors "on an urgent basis" in light of testimony presented at the ongoing judicial commission of inquiry into state-run asset manager the Public Investment Corporation. 

AYO's former CEO, Kevin Hardy, told the commission that the group's chief financial officer was instructed to tamper with the figures of AYO's maiden interim results filing.

AYO has denied its financials were changed. 

While the rand has been trading stronger overnight, the impact of the trade war between the US and China has hit markets, TreasuryONE said in a morning note to clients.

By 11:01, the rand was trading at R14.22 to the greenback.

"The rand has been trading stronger overnight but news just in of confirmation that the US has officially raised tariffs to 25% has hit markets.

"China has threatened to retaliate but is still committed to ongoing talks. The euro and pound are largely unchanged but equity markets have turned negative. Gold is up on the tariff news and is trading at $1 286.35," he said.

Peregrine Treasury Solutions's Bianca Botes said the global dynamic was largely overshadowing the local developments in terms of elections.

She said should the two sides reach an agreement, this could see "markets resetting on risk-on dynamics while focusing on the local elements at play".

"This could see the rand gain some momentum on the back of carry trade, to target levels as low as R14.10. The broader range of the rand has been between R14.35 and R14.48, occasionally rising in the overnight session to R14.30, with key support and resistance at R14.30 and R14.50."

Botes said the week ahead would be largely dependent on the US-China trade war. 

"From a local perspective, we will keep a keen eye on the unfolding politics including the official election results and potential coalitions (if any)." 

US hikes tariffs amid trade talks; China vows to retaliate

Shawn Donnan, Jennifer Jacobs and Kevin Hamlin, Bloomberg

The US hiked tariffs on more than $200 billion in goods from China on Friday in the most dramatic step yet of President Donald Trump’s push to extract trade concessions, deepening a conflict that has roiled financial markets and cast a shadow over the global economy.

China immediately said in a statement it is forced to retaliate, though it hasn’t specified how. The move came after discussions between President Xi Jinping’s top trade envoy and his US counterparts in Washington made little progress on Thursday, with the mood around them downbeat, according to people familiar with the talks.

The negotiations were due to resume on Friday morning Washington time. Asian stocks swung in a volatile session and US futures dropped. Ahead of the talks on Thursday, Trump also said the US would go ahead with preparations to impose 25% tariffs on a further $325 billion in goods from China, raising the prospect of all of China’s goods exports to the US - which were worth about $540 billion last year - being subject to new import duties.

Such a move would take weeks to deploy. But it would have significant repercussions for the US, Chinese and global economies.

Economists at Moody’s Analytics said in a report this week that an all-out trade conflagration between the world’s two-largest economies risked tipping the US economy into recession by the end of 2020 just as voters go to the polls in the US.

The move “exacerbates the uncertainty in the global trading environment, further raises tensions between the US and China, negatively affects global sentiment and adds to risk aversion globally,” said Michael Taylor, managing director for credit strategy and standards at Moody’s Investors Service in Hong Kong.

The new tariffs that took effect at 12:01 a.m. Washington time Friday raise from 10% to 25% the duties on more than 5 700 different product categories from China - ranging from cooked vegetables to Christmas lights and highchairs for babies. US officials have said the new duties - introduced on just five days’ notice - will not apply to goods already on boats headed for American shores.

A 25% tariff is already in place on a further $50 billion in imports from China.