Markets WRAP: Rand closes at R13.96 to the greenback

The UK will suffer a major economic hit if Parliament rejects Theresa May’s Brexit deal and the country crashes out of the European Union with no new trade arrangements in place, according to official analysis.

A government report on Wednesday said GDP will be as much as 10.7% lower over 15 years if there’s no orderly exit and the supply of workers from the bloc dries up. The UK will be poorer under all exit options modeled in the study.

While the new analysis paints a dire picture of the worst-case scenario, it does not provide a clear picture of the economic impact of the deal May finalised with the EU last week. Instead, it offers an analysis based loosely on a plan that’s already been rejected by the bloc.

The omission of May’s agreement is likely to be politically awkward for the government, because the numbers are intended to help inform politicians before they vote on whether to accept or reject the deal May has negotiated.

It also underlines the uncertainty facing Britain with just four months before it’s due to leave the world’s largest trading bloc. Even officials working in the heart of government cannot calculate the impact it will have on the economy with any real certainty.

"Our deal is the best deal available for jobs and our economy," May told Parliament. If Parliament rejects May’s deal, the U.K. will be on course to crash out of the EU on March 29 into a legal limbo, with no special rules in place to regulate trade with the bloc. Backers of May’s deal hope the findings in the analysis will bring wavering politicians - especially Conservative rebels - into line. - Bloomberg

Stocks climbed in Europe and Asia, with US futures pointing higher as investors rekindled their risk appetite before a speech by the chair of the Federal Reserve. The dollar maintained gains and Treasuries were steady.

Miners and energy producers led an advance in the Stoxx Europe 600 index, following an upbeat session across most of Asia. Contracts on the Dow, S&P and Nasdaq were all in the green. The 10-year Treasury yield was steady after Fed Vice Chairman Richard Clarida backed gradual rate hikes ahead of Chairman Jerome Powell’s speech on Wednesday.

The pound was steady, holding losses from a day earlier as UK Prime Minister Theresa May appeared to back down in a key Brexit battle with Parliament. European bonds and the single currency drifted.

Brent crude climbed back to about $61 a barrel.The debate on the pace of monetary policy tightening in the US next year has intensified this week ahead of Powell’s speech that will be parsed for any hints on prospects for a pause in rate increases next year.

Clarida said risks to the US economy are "less skewed to the downside," while St. Louis Fed President James Bullard was more cautious, telling Reuters that officials must monitor possible “cracks” in the American recovery and that growth is going to slow in 2019 and 2020.

For investors, a lot also rides on the meeting between President Donald Trump and his Chinese counterpart Xi Jinping in Argentina this week, amid an escalating trade war that’s been keeping markets hostage. Trump is open to a deal with China but is ready to impose more tariffs if the upcoming talks don’t yield progress, Larry Kudlow, the president’s top economic adviser, told reporters Tuesday ahead of the tete-a-tete.

Elsewhere, emerging-market currencies were steady and their shares climbed. Bitcoin rose above $4,000 after plunging earlier in the week. - Bloomberg

Andre Botha, Senior Currency Dealer at TreasuryONE said in a morning note to clients, “Even though the rand traded in a 10 cent band for the most of South Africa's trading session, the rand tested the R14.00 level in overnight trade. The reason for this quick move in the rand was a resurgent US dollar, as it broke well below the 1.1300 level last night.

By 09:39, it was trading at R13.93.

Regarding trade, we saw a day of two halves, with first President Trump and his Chinese counterpart stating that they would like a mutually beneficial agreement when they meet later this week. This gave EM currencies a shot in the arm and the rand tested lower failing to break below R13.80.

However, later in the day, President Trump stated that the current Brexit deal might undermine trade between the two countries. This statement put the pound on the back foot and helped the US dollar stronger. The US dollar also gained some ground in evening trade after Fed Vice Chairman Richard Clarida said that the central bank would further back interest rate hikes.

Looking at today, we have the release of the US GDP number which could place some pressure on the rand should the number be positive. The other news that is of importance is any trade-related statement from President Trump as it has an impact on markets.” 

Asia stocks rise

Asian stocks climbed, as a rally in tech shares gathered pace, with investors mulling comments from Federal Reserve officials and the chances of a breakthrough in the US-China trade dispute.

The dollar maintained gains.

Shares in Hong Kong, China and Japan led gains, while South Korea and Australia underperformed.

Earlier, the S&P 500 Index climbed for a second day. The 10-year Treasury yield was steady as Federal Reserve Vice Chairman Richard Clarida backed gradual rate hikes ahead of Jerome Powell’s speech on Wednesday.The debate on the pace of monetary policy tightening in the US next year has intensified this week ahead of Powell’s speech that will be parsed for any hints on prospects for a pause in rate increases next year. 

On the up

Tokyo stocks opened higher on Wednesday on gains on Wall Street and a cheaper yen, while investors await US-China summit talks amid speculation about a possible trade deal.

The benchmark Nikkei 225 index, which has closed higher for the past three days, added 0.51% or 111.66 points to 22 064.06 in early trade while the broader Topix index was up 0.34% or 5.60 points at 1 649.76.

"The Tokyo market, encouraged by higher US prices and a weaker yen, will likely test higher prices," Okasan Online Securities chief strategist Yoshihiro Ito said in a note.