Markets WRAP: Rand closes the day at R13.91/$

OVERVIEW: US stocks failed to add to the biggest gain in more than two weeks as trade tensions with China flared and investors assessed comments from a Federal Reserve official. Treasuries declined.

Technology shares led declines in the S&P 500 after President Donald Trump threatened China with more tariffs days before a sit-down with his counterpart Xi Jinping.

Apple fell deeper into a bear market as Trump suggested levies on mobile phones. The 10-year Treasury yield rose as Fed Vice Chairman Richard Clarida backed gradual rate hikes.

The dollar advanced. United Technologies tumbled more than 5% after it said it plans to break into three separate companies. Salesforce.com fell ahead of its earnings report. In Europe, raw materials producers led stock indexes lower, while bonds rose. The pound weakened as traders mulled prospects for parliamentary approval of the Brexit deal, which Trump said could jeopardise Britain’s ability to strike a trade pact with the US West Texas crude edged higher.

Trade remains firmly in investors’ minds before leaders of the two biggest economies meet in Buenos Aires at the end of the week. Trump indicated in an interview with the Wall Street Journal published Monday that, besides a scheduled bump-up in tariff rates on $200 billion of Chinese imports in January, he’d also slap new duties on the remaining imports that have so far escaped his levies, depending on how negotiations proceed. That may weigh on optimism for US stocks, which climbed on Monday amid hopes a strong start to the holiday season will keep growth on track.

Fed speakers will be closely watched for the latest thinking on the trajectory of interest rates. Chairman Jerome Powell’s speech on Wednesday will be parsed for any hints on prospects for a pause in rate increases next year after traders reduced expectations for the pace of monetary policy tightening. Elsewhere, emerging market shares climbed. Bitcoin steadied below $3,700 after plunging 14% Monday.

Hussein Sayed, Chief Market Strategist at FXTM said in a note to clients, "The South African rand is witnessing some stability against the dollar ... despite renewed US-China trade concerns weighing on market sentiment. 

"Optimism over the nation recovering from a technical recession could mount if business confidence during the final quarter of 2018 meets or exceeds expectations. Taking a look at the technical picture, the USDZAR remains in a downtrend on the daily charts with price trading marginally below 13.86 as of writing. A technical breakdown and daily close below 13.80 may open a path towards 13.73 in the short term."Yesterday’s rally in US equities showed that the mood has shifted following last week’s selloff. All three major indices rebounded strongly led by beaten-down Tech, Retail and Financial sectors. The Dow Jones Industrial Average closed near its day’s high posting 354 points in gains, while the S&P 500 and Nasdaq Composite gained 1.55% and 2.06% respectively. "Optimism over a strong holiday sales season and a slight recovery in Oil prices helped to boost the oversold market. However, President Trump’s comments to The Wall Street Journal saying that he’s still likely to increase tariffs on $200 billion of Chinese goods and slap tariffs on the remaining $267 billion of imports will likely complicate markets further. "The global economy is in a desperate need to end the ongoing trade dispute between the two largest economies. Already we’ve been seeing many signs of economic slowdown in Emerging Markets, Europe and even in the US.Investors are likely to become more concerned that the G20 summit in Argentina kicking off on Friday won’t lead to a truce or a framework agreement between China and the US, but given that we’re living in a Trump world, there’s always a chance for last minute changes. Until then expect markets to remain choppy. "Investors will be focused on Fed talks this week with Fed Vice Chairman Richard Clarida due to speak later today followed by Fed Chair Jerome Powell tomorrow. The overall economic outlook has changed significantly compared to just a couple of months ago. Oil prices declined more than 30% from their peak suggesting inflation may slow down; equity markets entered correction territory hitting wealth; and dark clouds are gathering over the US housing market. I think the Fed has now enough reasons to adjust the pace of tightening policy, but investors need confirmation from policymakers. "The 3% recovery in oil prices yesterday seemed to be short-lived with both major benchmarks declining slightly today. It will be difficult to know where prices will be headed next unless we know the outcome of the G20 summit and OPEC’s annual meeting on December 6. Finding a new normal is likely to be a difficult task in the weeks to come. In the Cryptocurrency world, traders are no longer worried about price movements as much as the fate of these currencies. A fall from almost $20,000 to below $4,000 in Bitcoin’s price is a complete crash. Some may say that we had seen a similar correction before when prices dropped from $1,150 in December 2013 to below $300 more than a year later."However, the difference between then and now is the market cap. Back then investors and speculators may have lost nine billion dollars. However, this year’s move has wiped out more than $250 billion from its peak."

The rand remained stable following the news that SA's business confidence was at its lowest since the 2017 junk rating.

By 13:50, the rand was changing hands at R13.84 to the greenback.

OVERVIEW: US stock futures and European shares fluctuated on Tuesday while gains in Asian equities were limited after President Donald Trump said he’d likely increase tariffs again on Chinese imports, just days before meeting with his counterpart Xi Jinping.

Commodities retreated, led by copper. Contracts on the Dow, S&P and Nasdaq drifted, while Treasuries and the dollar held steady before the Federal Reserve’s top two officials speak in the coming two days. Equity benchmarks rose in Japan, but were steady in Hong Kong and China, in the wake of signals from Trump that he is prepared to go ahead with plans for higher tariffs, though China’s foreign ministry urged the US to work toward a positive outcome during a planned meeting at the Group of 20 summit this week.

Brent crude fell back toward $60 a barrel. The Stoxx Europe 600 Index was little changed, bonds rose across Europe and the euro currency edged lower. The pound fell as traders mulled prospects for parliamentary approval of the Brexit deal, which Trump said could jeopardise Britain’s ability to strike a trade pact with the US.

Foreign commerce remains firmly in investors’ minds ahead of the meeting between Presidents Xi Jinping and Trump in Buenos Aires at the end of the week. Trump indicated in an interview with the Wall Street Journal published Monday that, besides a scheduled bump-up in tariff rates on $200 billion of Chinese imports in January, he’d also slap new duties on the remaining imports that have so far escaped his levies, depending on how negotiations proceed.

That may weigh on optimism for US stocks, which climbed on Monday amid hopes a strong start to the holiday season will keep growth on track. Fed speakers will be closely watched for the latest thinking on the trajectory of interest rates as investors remain on the back foot as volatility picked up.

Chairman Jerome Powell’s speech on Wednesday will be parsed for any hints on prospects for a pause in rate increases next year after traders reduced expectations for the pace of monetary policy tightening. Elsewhere, emerging market currencies weakened and their shares traded little changed. Bitcoin steadied near $3,700 after plunging 14% Monday. - Bloomberg

Andre Botha, Senior Currency Dealer at TreasuryONE said in a morning note to clients, “There are a couple of risks for EM currencies this week and where we initially thought the risk would be towards the end of the week, it suddenly rushed to the fore yesterday.

"The main risk for EM this week is the meeting between the US President Trump and his Chinese counterpart. However, President Trump stated yesterday that he would look to employ further trade tariffs should no trade deal be struck at the weekend. These hard balling tactics from the US President have caused a bit of a scare in EM's and we saw a bit of a shift to safe havens yesterday with the US dollar ending the day on the front foot.

"Oil which has lost close to $30 per barrel in the past few weeks arrested the slide yesterday by ending the day above $60 per barrel.

"Gold, on the other hand, lost a bit of ground and is also one of the reasons, along with the stronger dollar, why the rand slipped on a bit of a banana peel. With data cupboard on the empty side, we will still take momentum from Trump's comments and we could see the rand losing ground today.

"The other side of the coin is that despite the recent dollar strength the rand has been resilient below the R14.00 handle, which suggests that there is still some risk-taking behaviour in the rand. This presents a recipe for the rand to trade within ranges much like yesterday as the market looks for fresh direction.”

Rand marginally firmer in early trade 

The rand is trading at 13.87/$ at 10:00, up 0.2% against the greenback. 

Earlier in a note to clients Andre Botha, senior currency Dealer at TreasuryONE, said there would be a couple of risks for emerging market currencies this week.

"The main risk for EM this week is the meeting between the US President Trump and his Chinese counterpart," said Botha. "However, President Trump stated yesterday that he would look to employ further trade tariffs should no trade deal be struck at the weekend. These hard balling tactics from the US President have caused a bit of a scare in EM's and we saw a bit a shift to safe havens yesterday with the US dollar ending the day on the front foot.

"Oil which has lost close to $30 per barrel in the past few weeks arrested the slide yesterday by ending the day above $60 per barrel. Gold, on the other hand, lost a bit of ground and is also one of the reasons, along with the stronger dollar, why the rand slipped on a bit of a banana peel. With data cupboard on the empty side, we will still take momentum from Trump's comments and we could see the rand losing round today.

"The other side of the coin is that despite the recent dollar strength the rand has been resilient below the R14.00 handle, which suggests that there is still some risk-taking behaviour in the rand. This presents a recipe for the rand to trade within ranges much like yesterday as the market looks for fresh direction.”

Stocks in Asia traded mixed on Tuesday and US futures retreated as President Donald Trump discussed plans for further China tariff increases in the absence of a trade deal.

The dollar steadied and Treasuries were little changed.Shares in Japan, China and South Korea gained, but declined in Hong Kong. Apple suppliers were mixed after Trump said the company’s iPhones could be hit by new tariffs.

Earlier, the S&P 500 Index recouped from the worst week in a month as investors speculated a strong start to the holiday season will keep US economic growth on track. West Texas oil stabilized above $51 a barrel, after recouping some of Friday’s 7% plus slide.

UK Prime Minister Theresa May will put her Brexit deal to Parliament for a decisive vote on December 11, but after her plan was savaged from all sides, the signs are she’s on course to lose.

The vote will mark the moment when British politicians decide whether to accept the contentious divorce terms May has struck with the European Union - or put the country on course to crash out of the bloc with no agreement in place.

May insisted on Monday that she’s “looking forward” to the House of Commons passing judgment in two weeks’ time. Her claim came after more than two hours of debate in Parliament on Monday dominated by criticism from all sides, with few voices raised in support.

Tokyo stocks opened higher on Tuesday, as investor sentiment improved following rallies on Wall Street with expectations growing for a year-end shopping spree.

The benchmark Nikkei 225 index was up 0.69% or 149.62 points at 21 961.62 in early trade, while the broader Topix index was up 0.68% or 11.13 points at 1 643.33.

"US stocks rallied with a sound beginning of the year-end shopping spree... Japanese shares are seen tracking the rally," Toshiyuki Kanayama, senior market analyst at Monex, said in a commentary.

Markets were also in bullish mood after oil prices stabilised, Britain sealed a Brexit deal with the EU and Italy signalled a more conciliatory stance in a budget fight with Brussels, analysts said.