Markets WRAP: Rand ends the day at R14/$ ahead of US Fed rates decision
Rand closed the day at R14.01/$
The rand ended the day lightly weaker by 0.82% at R14.01/$ to the dollar.
The local currency opened at R13.90 to the greenback.
Trade ranged between R13.89/$ and R14.03/$.
The US Federal Reserve Bank is expected to announce its interest rate decision later this evening, but markets expect it to remain unchanged.
In a market update however, Jameel Ahmad, global head of currency strategy and market research at FXTM, said that the tone of the Fed's statement will be important.
Closing indicators from TreasuryOne:
US 10 Year 3.22%
S&P 500 -0.08%
Gold 1 224.69
Plad 1 132.30
Rhod 2 430.00
Irid 1 470.00
Copp 6 136.15
Gold ZAR 17 168.68
Plat ZAR 12 210.37
Industry disappointed in third consecutive decline in manufacturing output
Steel and Engineering Industries Federation of Southern Africa chief economist Michael Ade noted that manufacturing output has been consistently declining from July 2018.
"Corresponding increases in fuel prices, a weaker rand and higher prices of both intermediate and final input have increased operational costs, also depleting existing margins,” said Ade.
Ade said it was clear from the data that the positive sentiments following the stimulus plan recently outlined by President Cyril Ramaphosa has yet to filter through to the manufacturing sector and the M&E cluster.
“Consequently, the general contribution of the sector to the Gross Domestic Product in quarter three will be lower than expected, especially considering that the benefits from outlined stimulus interventions will only become effective with a lag,” Ade added.
Investec economist Lara Hodes noted that manufacturing output was below the market consensus of an expected 1.9% year-on-year rise.
Local demand still remains muted and this coupled with mounting cost pressures and waning global export order growth, continues to weigh on manufacturing activity, she said.
The Foschini Group Interims released, stocks gain over 2%
The Foschini group's stock increased more than 2% on the back of its half-year results release on Thursday.
Group retail turnover: up 28.6% to R15.9bn
Gross margin: expansion to 53.6%, compared to 51% reported in September 2017.
Headline earnings: growth of 14.3% to a record R1.2bn
Headline earnings per share: up 8.3% to 506 cents
Free cash flow generated: equal to 85% of net profit for the period
Interim dividend: 330 cents per shareRead the full story here.
US stock futures slide as treasuries advance
US stocks looked set to put an end to a global rally that spread across Europe and Asia after the midterm elections.
Benchmark Treasury yields retreated from the highest level since 2011.
Futures on the S&P 500 retreated after a surge in the underlying index yesterday. Europe’s main equity gauge pared an earlier advance spurred by strong earnings and dividend outlooks from companies including AstraZeneca and Siemens.MORE HERE
Manufacturing production up 0.1% in September 2018
Manufacturing production increased by 0.1% in September 2018, compared with September 2017, according to StatsSA.
The largest positive contributions were made by food and beverages (up 2.7% and contributed 0.7 of a percentage point to overall production), basic iron and steel, non-ferrous metal products, metal products and machinery (up 3,3% and contributed 0.6 of a percentage point) and wood and wood products, paper, publishing and printing (up 3.4% and contributed 0.4 of a percentage point).
The largest negative contributions in September 2018 were made by petroleum, chemicals, rubber and plastic products (down 3.2% and contributing -0.7 of a percentage point), motor vehicles, parts and accessories and other transport equipment (down 4.9% and contributed -0.4 of a percentage point), and radio, television and communication apparatus and professional equipment (down 13,0% and contributed -0.2 of a percentage point).
Of this, FNB's senior economic analyst Jason Muscat said: South Africa’s manufacturing sector continues to face difficult conditions due to weak domestic demand, a lack of export competitiveness, escalating electricity costs, and labour market rigidities.
A depressed PMI suggests that these headwinds are likely to persist.
That said, the sector is likely to deliver a strong 3Q18 quarterly growth number, adding as much as 1 pps to headline growth after contractions in the first and second quarters.
Analysts react to mining production data figures
Jason Muscat, FNB senior economic analyst, weighs in on the latest mining production figures, which may impact GDP for the third quarter:
We expect the industry as a whole to continue facing headwinds as global growth slows, and despite greater policy certainty from a revised mining charter.
The print is negative for the sector’s contribution to GDP growth in 3Q18, which is likely to fall by approximately -5% q/q (seasonally adjusted and annualised) and shave -0.5 pps from the headline number.
Investec economist Lara Hodes expects the sector to continue facing numerous challenges - including escalating costs and mounting electricity fees.
"Subdued commodity prices, together with a global climate plagued by mounting trade and geopolitical woes, continues to weigh on export potential.
"Hopefully, the recently gazetted Mining Charter, version three, will create a degree of regulatory and policy certainty and will in turn attract much needed investment into this significant sector of the economy," she said.
Gold drags down mining production for September
Mining production for September decreased 1.8% year-on-year, according to data from Statistics South Africa (StatsSA).
Previously StatsSA reported a 9.1% year-on-year decline for August's mining production, which followed a 5.2% decrease in July 2018.
The largest negative contributor was gold, with production down 19%. It contributed -3.1 percentage points to overall production, according to StatsSA.
Two years of pound pain may be over with $1.50 on Brexit deal
What the Brexit referendum took away from the pound, a divorce deal may give back.
Aberdeen Standard Investments is betting that sterling could climb to $1.50 - a level not seen since the 2016 vote - within three months of a divorce agreement. That would mark a gain of 15% from the currency’s current level of about $1.31, a feat only seen twice in the past 50 years: the recovery from the 2008 credit crunch and the 1987 global stock crash.FULL STORY
ICYMI: Tokyo's Nikkei jumps more than 1.8% after Wall St rally
Tokyo's benchmark Nikkei index gained more than 1.8 percent on Thursday with market sentiment buoyed by a rally in Wall Street shares after the US midterm elections produced no major surprises.
The Nikkei 225 index rose 1.82% to 22 486.92, while the broader Topix index was up 1.74% or 28.82 points at 1 681.25.
"Buying sentiment spread as the market took a positive lead from Wall Street, erasing initial concerns about the US elections," said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.MORE HERE
European stock markets extend gains
European stock markets rose further at the open on Thursday, building on the previous session's gains thanks to an expected result in US midterm elections.
London's benchmark FTSE 100 index climbed 0.3% to 7 137.88 points, compared with the close on Wednesday.
In the eurozone, Frankfurt's DAX 30 gained 0.4% to 11 629 points and the Paris CAC 40 won 0.2% to 5 147.19.
Europe's main stock markets mostly closed up more than 1.0% on Wednesday in line with a global rally.FULL STORY
Standard Bank announces secondary listing on JSE competitor
Standard Bank on Thursday in a shareholder notice that its ordinary shares and second preference shares have been approved for inclusion in the list of qualifying equity securities to be traded on A2X with effect from November 15, 2018.FULL STORY
Oil trades near $62 as OPEC meet weighed against US stockpiles
Oil was steady after eight days of losses as investors weighed the potential outcome of an OPEC meeting this weekend against a bigger-than-expected gain in American crude stockpiles.
Futures in New York were little changed, after an 8.8% drop since October 26. The Organisation of Petroleum Exporting Countries and its allies may discuss the possibility of cutting production again next year when they meet in Abu Dhabi on Sunday.
Meanwhile, government data showed US stockpiles rose by 5.78 million barrels last week, compared with expectations for a 2-million-barrel gain.Oil lost steam last month following speculation that the US will grant exemptions to some nations to purchase Iranian supplies even after it hits the OPEC producer with sanctions.
Eight nations have received the waivers, which industry consultant FGE estimates will add 1.2 million to 1.7 million barrels a day of oil from the Persian Gulf state, higher than market expectations.FULL STORY
Asian markets track Wall St gains, positives seen in US gridlock
Asian markets mostly rose Thursday, building on a global rally as investors bet that gridlock in Washington will clip Donald Trump's wings, preventing him from driving through measures that would likely push up US interest rates.
Attention now turns to the end of the Federal Reserve's policy meeting later in the day, with its plans for hiking borrowing costs closely watched in light of the midterm election results.
Bets the central bank would lift rates again next month and continue to do so through 2019 have been a major cause of worry on trading this year but with the chances of more Trump tax cuts greatly reduced, expectations have been tempered.FULL STORY
ICYMI: Markets upbeat as US mid-term election results are announced
Initial results from the US indicated that the Democrats won the majority of seats in the House of Representatives while the Republicans extended their grip on the Senate.
Losing the majority in the House of Representatives could become a major headwind for Donald Trump in terms of passing through some of the drastic fiscal changes which have characterised his tenure as president so far.
The US dollar traded significantly weaker as a result with investors going for relatively more riskier assets.FULL STORY
US Fed rate decision expected to remain unchanged
Andre Botha, senior currency dealer at TreasuryONE said in a market update that the US Fed is ezpected to keep the interest rate unchanged. "We believe that this would be a non-event and that most of the market moves will be as a result of the hangover from yesterday and this could mean a range bound day."
Should the rand stay below R14.00, it could be the foundation for a move lower as investors are not running from EM's in the wake of the US dollar strength, he added.
Jameel Ahmad, global head of currency strategy and market research at FXTM also shared views that the Fed would keep rates unchanged. "While no rates hikes are expected to take place today, the tone of the statement is what matters."
Last week’s US employment report showed the economy remained on a solid footing with jobs increasing by 250 000 and wage growth reaching a near decade high. However, the housing market started showing signs of cracks, consumer spending slowed, and business investment decelerated. So, expect the statement to reveal a more dovish than hawkish tilt, he said in a market update.
Mining production expectations
NKC Economics expects a decline in mining production growth to decrease to -3.4% y-o-y in September, from -9.1% y-o-y in August.
NKC forecasts manufacturing production will improve to 3.1% y-o-y in September from 1.1% y-o-y in August.
NKC also expects US initial jobless claims to be little changed at 215 000, up a touch from 214 000. Ongoing volatility related Hurricane Michael is likely to put upward pressure on claims in Florida and Georgia.
As for the US Fed interest rate decision, NKC expects the statement will be little changed from the prior statement, and they aren’t likely to generate much of a market reaction, although they are likely to remain very upbeat on the outlook for economic growth and the prospects for inflation.
Rand and Indonesian rupiah were the best performing EMs yesterday
RMB economist Mpho Tsebe's take on the day's market expectations:
The rand and global equity stocks are rallying on expectation that a gridlock in Washington will benefit riskier assets. The US dollar closed yesterday’s trading session 0.3% weaker against major currencies, serving to lift other currencies.
The rand appreciated by 1.5% to close yesterday’s trading session at 13.91 against the US dollar – levels last seen in early August.
The rand and the Indonesian rupiah were the best-performing emerging-market currencies, followed by the Brazilian real. The rand bucked the trend against its “partners in crime”, as the Turkish lira, Argentine peso, and Russian ruble closed in the red. Global equity stocks also benefitted from the split-congress vote.
The Nasdaq closed 2.6% higher, while the Dow and S&P gained 2.1%. EM stocks and the JSE Alsi rose by 0.6% and 0.5%. Asian stocks, the Nikkei and Hang Seng, were up 1.9% and 0.8% in this morning’s trading session.
The split-congress vote is expected to hamper President’s Trump’s economic and political agenda, which has fuelled the US economy and the dollar.
A gridlock on further fiscal expansion means that the Fed does not have to accelerate the pace of monetary-policy tightening. This would benefit EM currencies, which have been on the back foot in relation to the strong US dollar.
However, Trump is likely to continue with protectionist trade policies – a negative for global growth and EM economies.
Locally, the SACCI Business Confidence Index rose to 95.8 in October from 93.3 in September, recording a second consecutive increase. Sentiment was bolstered by higher import volumes, vehicle sales and retail sales.
Today’s mining and manufacturing data will shed further light on economic activity and the magnitude of the third-quarter growth rebound.
Other positive news came from Eskom, with its board indicating that it plans to reduce staff costs by retrenching senior management. While it is not yet clear how many employees will be affected, this will help the power utility to curb high operating costs.
Today’s focus turns to the Fed meeting, with markets expecting rates to remain unchanged. However, investors will peruse the Fed’s statement for clues on future monetary-policy setting.
Locally, the key releases are mining and manufacturing data. Market consensus is for mining output to have decreased by 3.4% y/y in September, and for manufacturing production to have increased by 1.9% y/y.
Dollar bounces back, rand vulnerable to global shocks
The rand opened at at R13.90/$ on Thursday morning.
Overnight the dollar bounced back, this after the Democrats took control of the US House of representatives, Bianca Botes corporate treasury manager at Peregrine treasury solutions noted in a market update.
"This win not only opens the door to policy review, but also places a target on the unpopular President Trump;s back, especially in light of the Russian intervention in his election," she said.
The dollar strength is attributed to rising Us Treasury yields.
Botes warned that the rand remains vulnerable to the global political and economic landscape - as do other emerging market currencies.
Mining production data as well as manufacturing data will be released by StatsSA today. The US federal Reserve interest rate decision will also have a bearing on the currency's movements, she explained.
Botes expects the rand is expected to trade between a range of R14/$ and R14.27/$ today, while analysts from NKC economics expect it to trade between R13.70/$ - R14.05/$.