Markets WRAP: Rand falls to R14.17 at close of day

Load shedding, land reform, current account deficit adding to rand pain

In an update Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, noted the impact of local factors on the local currency today.

These local elements contribute to about 20% of the state of the rand. These are: Load shedding and its potential effect on economic growth for 2019, parliamentary approval to amend Section 25 of the Constitution dealing with land reform and the widening of the current account deficit.

"The rand has reacted very negatively, losing 1.4% against the dollar during trade today, and is once again above the R14.00/$ level. We are yet to feel the effect of the opening of the US market."

Globally, the US-China trade truce appears to be nothing more than a gentleman's handshake, Botes said. 

"Although it does not have a direct impact on trade between South Africa and other countries, except for the steel tariff we saw earlier this year, the impact of the tariffs will ultimately drive up prices of imported goods in the US, resulting in higher inflation and higher interest rates.   

"Since South Africa, along with other emerging markets, has high debt which is mostly foreign denominated, the ability to service this foreign debt diminishes as US interest rates rise, putting strain on an already severely strained local fiscus," she explained.

The rand broke through R14/$ on Thursday afternoon. By 12:41, it had weakened by 1.65% and was changing hands at R14.07 to the greenback.

Earlier Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions said some rand volatility was expected during trade today as the US returned to the market after a day of mourning following the death of former US president George H W Bush. She said at the time that the day's range was expected to be R13.70 to R13.98.

The reignited fear of trade tensions between the US and China is not the best news for the rand, says Bianca Botes, corporate Treasury Manager at Peregrine Treasury Solutions. The unit was edging closer to R13.90/$ on Thursday morning despite a rather successful week. By 10:01, the rand was changing hands at R13.87/$.

"The reignited fear of trade tensions between the US and China is causing quite a bit of outflow from emerging markets as risk aversion is once again the investor’s modus operandi. The markets will be keeping an eye on the continuous unfolding of Brexit today, as well as the self-proclaimed 'tariff man' from a political agenda viewpoint, while from a data perspective we will be factoring in jobless claims due from the US and, of course, the local current account data. 

"Unfortunately our SEO worries are far from over as Eskom makes a bold statement that it will seek R100bn from government. The debt-ridden power utility has been implementing load shedding for just over a week, causing fears of the potential negative impact on an already moribund economy. Expect some rand volatility during trade today as the US returns to the market after a day of mourning. The expected range for the currency is R13.70 to 13.98."

TreasuryONE in its morning note to clients also echoed these sentiments, highlighting that the rand, along with other emerging markets like Turkey and Mexico was weaker this morning. 

"Eskom's woes are putting pressure on the rand while internationally, news of the arrest of Hauwei's CFO in Canada has soured US-China relations."

Gold is up at $1240.15 while Palladium is trading higher than Gold at $1247.50 for the first time since 2003.

Top Huawei exec arrested 

Chinese telecoms giant Huawei said on Thursday it was unaware of any wrongdoing by its chief financial officer, who was arrested in Canada and faces extradition to the United States.

Canada's justice ministry said Meng Wanzhou, the daughter of company founder Ren Zhengfei, was arrested in the western city of Vancouver on December 1. The ministry said she faces a bail hearing on Friday but it did not provide further details about the case.

Asian markets tumble, top Huawei exec arrested 

Shares across Asia plunged on Thursday, with technology firms in Hong Kong and Shanghai battered after the arrest of a top executive at Chinese telecoms giant Huawei that has also fuelled fears about the recent China-US trade deal.

As Donald Trump and Xi Jinping's tariffs ceasefire last weekend - which sparked a one-day rally - fades to a distant memory, investors are back in selling mood as they fret over a range of issues including the state of the world economy, oil prices and Brexit.

The chances of trade peace between the US and China took a blow on Thursday as it emerged Huawei chief financial officer Meng Wanzhou had been held in Canada and faces extradition to the United States over alleged Iran sanctions breaches by the firm.