Markets WRAP: Rand closes at R13.76/$

The rand closed at R13.76 to the greenback on Tuesday afternoon. The day's range was between R13.73 to R13.84.

Earlier Andre Botha, Senior Dealer at TreasuryONE said, “The rand stepped on the proverbial banana peel yesterday, as it slipped back to the R13.80 levels against the US dollar.

"The reason for this is two-fold, with the US dollar strengthening for the 9th straight session and the concerns that are being raised about Eskom implementing load shedding.

"Load shedding is normally rand negative as a lack of power supply affects the country's economic number as production and manufacturing fall.

"This could have a detrimental effect on the growth number out of South Africa.

"Moody's have also raised their concern about whether the proposed split in Eskom by President Cyril Ramaphosa will cure the financial woes at the power supplier.

"It seems that at least for the moment, the recent rand rally has faded and the rand could find itself on the defensive should further negative headlines reach the market.”

OVERVIEW: US stock futures rose and equities advanced across Europe and Asia on optimism over global trade and a tentative deal among American lawmakers to avert a government shutdown. Treasury yields climbed. Contracts on the Dow, Nasdaq and S&P 500 all pointed to a firmer open and carmakers led the advance in the Stoxx Europe 600 Index.

The dollar held on to most of its recent gains after US lawmakers said they reached an “agreement in principle” on border security funding that would avert a second government shutdown. The Trump administration said the president still wants to meet China’s Xi Jinping in an effort to end the trade war.

In Japan, the country’s 10-year bond yields remained in negative territory even after the central bank cut purchases of some longer-dated bonds for the first time since July in a regular operation. The institution has sought to taper its purchases while focusing on yield targets rather than quantitative easing. Nissan reported worse-than-expected results.The prospect of a deal to keep the US government open together with hints that President Donald Trump may reach an accord with China appear to be rekindling the rally in riskier assets after a turbo-charged start to the year showed signs of ebbing last week. A dovish shift by the world’s central banks has also helped, but at the same time has underscored the dilemma facing investors - join the chase for late-cycle gains, or gird themselves for a looming slowdown in growth.

“The trade talks are key,” Jason Vaillancourt, Putnam Investments global asset allocation co-head, said on Bloomberg TV. “If we can get a little bit of those growth engines starting to level out around the world, whether it be Japan or Europe, and just bottom out, then I think that will go a long ways to putting a base under risky assets."

Elsewhere, Brent crude rose from its lowest close in more than a week. Emerging markets shares climbed and their currencies edged higher. The pound held steady as UK Prime Minister Theresa May prepared to update lawmakers on the progress  — or lack thereof — of Brexit talks with the EU. The offshore yuan strengthened for the first time in five days. Iron ore fell in Singapore.

Here are some key events coming up:Chinese Vice Premier Liu He was expected to join US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in high-level trade talks Thursday and Friday. Earnings season continues with reports from companies including Cisco, Vivendi, Nvidia, Nestle, Coca-Cola and Credit Suisse. Sweden’s Riksbank is expected to keep interest rates at minus 0.25% on Wednesday after the first increase in more than seven years in December. Data Wednesday is expected to show US consumer prices rose 0.1% in January, after falling 0.1% in December. If no deal is reached on the US-Mexico border wall, parts of the federal US government may shut down again later this week when stopgap government funding expires.

These are the main moves in markets:

Stocks

Futures on the S&P 500 Index climbed 0.7% as of 07:10 New York time, the largest increase in more than a week. The Stoxx Europe 600 Index gained 0.6%. The MSCI All-Country World Index advanced 0.4%, the largest gain in a week. The MSCI Emerging Market Index climbed 0.5%, the first advance in a week and the biggest increase in more than a week.

Currencies

The Bloomberg Dollar Spot Index declined less than 0.05%, the first retreat in almost two weeks. The euro jumped 0.1% to $1.1284, the first advance in more than a week and the biggest increase in almost two weeks. The Japanese yen fell 0.1% to 110.53 per dollar, the weakest in almost seven weeks. The British pound decreased less than 0.05% to $1.2854, the weakest in more than a month. The MSCI Emerging Markets Currency Index climbed 0.2%, the largest increase in more than a week.

Bonds

The yield on 10-year Treasuries gained three basis points to 2.68%, the biggest rise in more than a week. Germany’s 10-year yield increased one basis point to 0.13 percent. Britain’s 10-year yield climbed one basis point to 1.185 percent. The spread of Italy’s 10-year bonds over Germany’s fell four basis points to 2.7358 percentage points.

Commodities

The Bloomberg Commodity Index jumped 0.6%, the biggest increase in two weeks. Brent crude increased 2.1% to $62.79 a barrel, the highest in almost 12 weeks on the largest climb in more than a week. LME copper declined 0.6% to $6,112.00 per metric ton, the lowest in two weeks. Gold jumped 0.4% to $1,313.15 an ounce, the largest climb in almost two weeks. - Bloomberg

The Trump administration said the US president still wants to meet China’s Xi Jinping in an effort to end the trade war, a sign of optimism as negotiators from the world’s two-biggest economies start their latest round of talks this week.

“He wants to meet with President Xi very soon,” White House adviser Kellyanne Conway said Monday on Fox News. “This president wants a deal. He wants it to be fair to Americans and American workers and American interests."

Uncertainty whether the leaders will meet to finalise an agreement has stoked concerns that negotiations are faltering as the March 1 deadline approaches. If there’s no deal by then, President Donald Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports. Negotiators from the two countries are meeting this week in Beijing, with US officials pressing China to commit to deeper reforms to a state-driven economic model that they say hurts American companies. Mid-level officials began discussions Monday in preparation for two days of talks starting Thursday involving US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He. Lighthizer and Mnuchin were seen arriving at a Beijing hotel on Tuesday. Aides to Trump say this week’s talks are important as they need to demonstrate credible progress to both the president and financial markets.

But the two sides are only just starting the work of drafting a common document and still tussling over how a deal may be enforced, which US officials have repeatedly called a crucial element.

Possible Extension

As a result, some aides privately acknowledge the most likely scenario is for the March 1 deadline to be extended and for tariffs on some $200 billion in Chinese imports not to be raised to 25% as Trump has threatened. The question they are mulling is how to do so while maintaining pressure on the Chinese side and the urgency that has accompanied the current discussions. For that reason, some officials are keen for any extension not to be open-ended. They also are eager not to let the timing of a Trump/Xi meeting to close the deal slip much past the end of March.

Chinese would favor such an extension, and some are optimistic about it.

"I think there will be positive outcomes from this round of trade talks, because the two sides have shown willingness to seek a deal," said Wei Jianguo, a former vice commerce minister and now vice director of China Center for International Economic Exchanges in Beijing. "Even if no deal is reached in this round of talks, I don’t think tariffs will be hiked on March 1. The highest possibility is that the US will agree to postpone the deadline, buying time for the two leaders to meet and sign off on the final deal."

Maybe Mar-a-Lago

Trump told reporters in January that he planned to meet Xi in late February, though he backtracked on that last week and said a gathering wouldn’t take place this month. It’s still possible the leaders may get together in March at Trump’s Mar-a-Lago resort in Florida, Conway said Monday, when asked about a report from news agency Axios to that effect. The US president has said no deal will be final until he meets with his Chinese counterpart.

“He has forged a mutually respectful relationship with President Xi,” Conway said. “They will meet again soon.”

The last round of talks in Washington late last month resulted in China importing American soybeans as it implemented promises to buy more US goods. While those purchases will provide relief to US farmers, there has been no breakthrough on the structural issues separating the two nations, such as industrial policy, government subsidies, protection of intellectual property or forced transfers of technology.

Strong Motivation

Facing an economic slowdown at home, the Chinese government has a strong motivation to address American demands and put an end to the trade war. It has fast-tracked approval of a law that would ban theft of intellectual property and forced technology transfers, but the question is how much more it can compromise. With the US now pushing a plan of prioritising spending on artificial intelligence research, it will be difficult to talk China out of its policies to dominate advanced technologies. And with March 1 approaching, speculation is growing that it will be hard for negotiators to agree to the complete deal demanded by Trump.

“The key is whether the US and China can find common ground,” according to He Weiwen, a former commerce ministry official and now a senior fellow at the Center for China and Globalisation, an independent research group. “It can’t be ruled out that the US would extend the deadline, but still, it’s too early to predict anything.” - Bloomberg

Oil rose from a two-week low as a tentative accord to prevent another US government shutdown reassured investors and boosted financial markets. Crude futures rose 0.8%in New York, after sliding on Monday to the lowest settlement since January 28.

Congressional negotiators said Monday in Washington they had reached a deal in principle on border security to avoid closure of the federal government. US crude stockpiles are projected to rise for a fourth week, the longest such run since November, according to a Bloomberg survey before data due Wednesday.

Crude’s rally has fizzled in February as concern the US and China won’t be able to defuse their trade war damps the demand outlook, while a strengthening dollar has reduced the appeal of commodities priced in the currency.

Prices have shown limited response to output reductions by the Organisation of Petroleum Exporting Countries and its allies, as well as an escalating political crisis and sanctions against Venezuela.

“The broader market sentiment, risk on and risk off, continues to influence oil prices,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “With high OPEC compliance and healthy oil demand, inventory dynamics might surprise and support prices over the coming months.

”West Texas Intermediate crude for March delivery rose 44 cents to $52.85 a barrel on the New York Mercantile Exchange at 09:39 in London. The contract fell 31 cents on Monday to $52.41. Brent for April settlement added 44 cents to $61.95 a barrel on the London-based ICE Futures Europe exchange. It fell 1% to settle at $61.51 on Monday. The global crude benchmark traded at a $8.76 premium to WTI.

Senate Appropriations Chairman Richard Shelby said lawmakers agreed on all seven spending bills needed to keep government agencies open. The news spurred gains in European and Asian stocks on Tuesday as investors were worried another partial shutdown would be a drag on US growth.

Meanwhile, US and Chinese trade negotiators are meeting in Beijing this week to try and reach a deal before a March 1 deadline when higher American tariffs on Chinese imports take effect.

President Donald Trump wants to meet Chinese President Xi Jinping “very soon,” White House adviser Kellyanne Conway said Monday on Fox News, an optimistic sign for investors who are becoming increasingly concerned there won’t be an agreement.

US inventories rose by 2.4 million barrels in the week through February 8, according to the Bloomberg survey before the Energy Information Administration data. Record US production will add further to the country’s stockpiles, which are already above the five-year average of 432 million barrels. - Bloomberg

The rand is paying the price for Eskom load shedding, say market analysts.

"With Eskom implementing stage 4 load shedding and Moody's announcement that the split of Eskom is not enough to turn Eskom around, the state of the SOE remains dire and the rand is paying the price,"says Peregrine Treasury Solutions's Bianca Botes.

By 09:17, the rand was trading at R13.75 to the greenback.

"Having easily pushed through the support levels at R13.70/$ after the announcement, the path towards R14.00 is once again set. We will be keeping a close eye on manufacturing and employment data from the local economy today, and while no fireworks are expected, any number below market expectations will send the rand into treacherous terrain.

"On the global side, US JOLTs are due for release shortly after close of the local market. The local currency may see an intra-day range of R13.74 to R13.90."

TreasuryONE also issued similar sentiments in terms of the impact of load shedding on the rand.

"The rand continues to trade on a weaker note as Eskom's stage 4 load shedding yesterday rattled the local market. By early this morning, it was already the poorest performing EM currency."

Asian markets rise on trade hopes, weak yen 

Asian shares were mostly up Tuesday as investors watched key US-China trade talks aimed at averting punitive tariffs which could slow the global economy, and a weak yen boosted exporters.

Markets were also lifted by a tentative deal to avert a new government shutdown.Initial trade talks are under way in Beijing, and top-level negotiations are set for Thursday and Friday, as the deadline looms for a deal to prevent a sharp rise in US duties on billions of dollars worth of Chinese goods.

"Officials on both sides of the US-China trade talks expressed satisfaction with the progress thus far," wrote Jeffrey Halley, senior analyst at Oanda, in a commentary.

Failure to agree a deal between the two economic superpowers before March would see tariffs on $200bn worth of Chinese imports more than double. Washington is demanding far-reaching changes from Beijing on what it says are unfair commercial practices, including theft of intellectual property and barriers to foreign firms in Chinese markets.

While Hong Kong edged down 0.1%, Shanghai gained 0.3% and Tokyo - returning from Monday's public holiday - rose 2.0%.

Japanese exporters benefited as a resurgent dollar left the yen at its weakest level in six weeks. The dollar has returned to early January levels on the US currency's longest unbroken rally in two years, as concern builds over poor growth forecasts in Europe and elsewhere.

Several central banks have fallen in line with the Fed's dovish stance since it held interest rates unchanged two weeks ago. Tokyo-listed exporters such as Toyota, Nissan, Honda, Panasonic all saw gains. Sydney rose 0.4%, Taipei added 0.7% and Seoul 0.5%. - AFP

Ghosn Effect: Nissan, Renault set to unveil first results post-crisis

What kind of financial blow has the widening scandal surrounding Carlos Ghosn delivered to Nissan and Renault SA? Investors are about to get a glimpse when closely watched earnings releases come out this week.

The alliance partners have spent the last two months coping with a major reputational hit from Ghosn’s arrest, indictments by Tokyo prosecutors over alleged financial improprieties and an unflattering spotlight on both companies’ corporate governance controls.

Then there’s the sluggish sales in China and the US, Britain’s potentially jarring exit from the European Union and huge investments in electric and autonomous vehicles hovering over the entire auto industry.

Taken together, these negatives could leave the alliance partners falling behind competitors such as Volkswagen and Toyota in the race to adapt to the changing terrain. The risks may be greater for Nissan since the lion’s share of allegations against Ghosn reflect his tenure there, and its business challenges are tougher than Renault’s.