Markets WRAP: Pound takes Brexit tumble as rand gains

Sharp fall for pound - AFP

The pound dived Thursday as a string of British government resignations appeared to put a draft Brexit deal in serious jeopardy, dealers said.

The UK currency was pummelled as ministers, including Brexit secretary Dominic Raab, quit in protest against the draft EU exit deal, sparking concern that Prime Minister Theresa May could face a no-confidence vote.

"This departure (of Raab) could put at risk the Brexit deal and traders are selling the British currency due to growing uncertainty about the future of the UK," said ActivTrades analyst Carlo Alberto De Casa.

Rand firms against pound in early afternoon 

The rand was trading 2.51% stronger against the pound on Thursday afternoon as the British currency fell sharply.

This after Prime Minister Theresa May was hit by two Cabinet resignations. She may also face a no-confidence vote by dissenting members of her own Conservative Party over the draft Brexit Withdrawal Agreement adopted by Cabinet on Wednesday evening. 

At 15:10 the rand was trading at R18.23 to the pound, after opening at 18.70. 

The rand also firmed marginally against the dollar on Thursday afternoon, apparently shrugging off concerns that it would fall in the wake of the adoption of a resolution by a committee of Parliament to change the Constitution to specifically make land reform without compensation easier. 

At 15:10 the local currency was trading at R14.26/$, up 0.9% on the day. 

Pound tumbles, gilts rally as UK Brexit Secretary steps down

The pound slumped and gilts rallied after Dominic Raab quit as UK Brexit secretary less than 24 hours after Prime Minister Theresa May said she had won cabinet approval for a deal with the European Union.

Investors in the money markets immediately priced out the prospect of a rate increase by the Bank of England next year after Raab said that he couldn’t “in good conscience support the terms proposed for our deal.”

His departure stokes fears that a revolt from within her own party may imperil May’s leadership.

“The resignation of Brexit secretary Raab comes at a difficult time for May and could raise the risk of a vote of no-confidence in the PM,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA. “The pound is lower on that but it seems that uncertainty could push it lower still."

Rand steady after land resolution adopted 

The local currency was largely unchanged after a committee of Parliament adopted a resolution to amend the Constitution to specifically allow for land expropriation without compensation. 

At 12:24, the rand was trading at R14.30/$, still up 0.5% on the day. The local currency earlier reached a high of R14.20/$, but started to weaken as the dollar strengthened on news that Dominic Raab, the UK's Brexit Secretary, had resigned. 

JUST IN: Dominic Raab resigns as Brexit Secretary 

Markets in the UK will be waiting to see what effect, if any, the resignation of Brexit Sectary Domic Raab on Thursday morning will have. 

His resignation followed the announcement by British Prime Minister Theresa May on Wednesday evening that her Cabinet had backed a draft Withdrawal Agreement. 

"The collective decision of Cabinet was that the Government should agree the draft Withdrawal Agreement and the Outline Political Declaration – this is a decisive step which enables us to move on and finalise the deal in the days ahead," said May. 

Rand trading 0.8% stronger against dollar at 11:00

The rand strengthened against the dollar on Thursday morning, to trade at R14.27/$ at 11:00, up 0.8% on the day.

The local currency was up 1.41% against the pound at 11:00, to trade at 18.37. 

Oil trades near $56 as US inventory gain counters OPEC's plan

Oil traded near $56 a barrel after snapping a record losing streak as traders assessed signs of rising US crude inventories against the prospect of OPEC and allies cutting output.

Futures in New York fell were little changed after recovering slightly on Wednesday from a 17.6% slide over the previous 12 sessions. An industry report was said to show US stockpiles rose 8.8 million barrels last week, more than double the increase forecast in a Bloomberg survey before government data due on Thursday.

OPEC and its partners, meanwhile, are said to be considering a bigger-than-anticipated cut in production. Oil’s tumbled more than 26% from a four-year high in October, hit by a US move to allow some Iranian oil shipments to continue even after the imposition of sanctions on the Persian Gulf state, as well as rising American inventories and record output.

Now, investors are assessing if the Organization of Petroleum Exporting Countries and its allies will curb production despite President Donald Trump’s criticism of the plan.

Rand strong in early trade after gaining 1% on Wednesday 

The rand rebounded on Wednesday following subdued US consumer price inflation figures which mean more muted US interest rate hikes, thereby reducing risks for emerging markets. 

The rand gained close to 1% to trade at a high of R14.28/$ on Wednesday. However on Thursday morning, the local unit has edged slightly weaker to kick off the day at R14.33. It was trading at 14.25/$ at 10:43. 

Local retail sales remained subdued, showing marginal growth of 0.7% year-on-year in real terms, and this had little effect on the currency. 

While there is little momentum to really act as a catalyst for further rand strength, the currency has been able to outperform other emerging market currencies, while the weekly range remains between R14.20 and R14.60.We will keep a close eye on the US jobless claims this afternoon, as well as US retail sales to give direction to the dollar today.

- Bianca Botes, Peregrine Treasury Solutions

Asian markets mixed but traders on edge, pound holds ground

Asian investors moved nervously on Thursday as they struggled in the face of multiple headwinds, while oil prices resumed their drop and the pound struggled to hold its gains.

Fears about the China-US trade war, rising Federal Reserve interest rates, tensions within the European Union and slowing growth in most economies have helped drive stocks south for the past few months.

And this week it has been the turn of the crude market to drive the sell-off, dragging energy firms as it dropped like a stone on slowing demand and high output, while US sanctions on major producer Iran were not as severe as expected.

On the brink 

Prime Minister Theresa May is fighting for her political life as a growing revolt from within her own party threatens to derail her Brexit plans and force the UK out of the European Union with no deal.

At least two senior ministers are said to be considering whether to quit, while scores of Conservative members of Parliament are lining up to vote against the accord that her cabinet grudgingly agreed to. There are even reports that a coordinated plot to oust May as UK leader is gathering pace.

While business and finance leaders are pleased that May has finally secured an agreement, their relief could be short-lived. The prime minister’s own team believe that the next few days will be the most perilous she’s encountered since becoming prime minister in the aftermath of the referendum vote to leave the EU in 2016.

In the two years since, she’s battled her party and the bloc’s 27 other countries to reach a fragile agreement on the terms of Brexit. On Wednesday, it was time for May finally to push her divided cabinet to sign up to the 585-page divorce deal. Next she must persuade a rebellious Parliament to follow suit and back her plan.