Markets WRAP: Rand closes at R15.39/$

The rand closed at R15.39 to the greenback on Monday afternoon.

The rand started the day on the backfoot at R15.29. The day's range was  expected to be between R15.25 and R15.38.

OVERVIEW: US stocks climbed after the Trump administration signaled progress on trade negotiations and beat back speculation the economy is headed for recession. Treasuries slumped.

The S&P 500 Index extended gains into a third day as US Commerce Secretary Wilbur Ross said the nation will delay restrictions that the Trump administration has imposed on some business operations of China’s Huawei Technologies Co.

Long-dated bonds are moving the Treasury yield curve away from inversion, as the US government considers borrowing for a century. Crude rallied after a drone attack on a Saudi Arabian oil field. Gold fell.

The week started on a more positive note as news on Huawei was seen as encouraging for the long-awaited trade pact between the world’s two largest economies. The announcement followed a tweet from President Donald Trump over the weekend indicating the US was “doing very well with China, and talking,” but suggesting he wasn’t ready to sign a deal.

Federal Reserve Chairman Jerome Powell is set to speak Friday about the challenges for monetary policy at the central bank’s annual Jackson Hole symposium.

“This week is an opportunity for, in particular, Chair Powell to straighten up the message and show that they are at one and that there is a clear view about where the economy is going,” Anne Anderson, head of fixed income in Sydney for UBS Asset Management Australia, told Bloomberg TV.

“This fear needs to be arrested.”

Equities around the world plunged last week after the key US 2-year and 10-year yield curve briefly flipped for the first time since 2007, spurring fears of an economic downturn. But this correction is likely to be short-lived and US stocks will recover as soon as early September, according to JPMorgan Chase & Co. strategists led by Mislav Matejka, as stimulus from major central banks outweighs worries about a slowdown.

In corporate news, Estee Lauder jumped after the cosmetics company forecast earnings that topped analysts’ estimates. PG&E Corp. sank after a judge ruled that a jury should determine whether it should pay as much as $18 billion in damages to wildfire victims.

Elsewhere, Bunds extended declines as the German government was said to be getting ready to shore up Europe’s largest economy -preparing fiscal stimulus measures that could be triggered by a deep recession.

Here are the main moves in markets:

Stocks

The S&P 500 rose 1.1% to 2,919.45 as of 09:57 New York time. The Stoxx Europe 600 Index climbed 1%. The MSCI Asia Pacific Index gained 0.9%.

Currencies

The Bloomberg Dollar Spot Index added 0.1%. The euro advanced 0.1% to $1.1098. The Japanese yen dipped 0.2% to 106.57 per dollar.

Bonds

The yield on 10-year Treasuries rose five basis points to 1.61%. Germany’s 10-year yield climbed five basis points to -0.64%. Britain’s 10-year yield advanced two basis points to 0.488%.

Commodities

The Bloomberg Commodity Index decreased 0.3%. West Texas Intermediate crude increased 1.6% to $55.73 a barrel. Gold decreased 1% to $1,507.90 an ounce. - Bloomberg

Airports Company South Africa (Acsa) announced on Monday that Deon Botha's term as non-executive director has come to an end effective from July 31, 2019.

In a statement the Acsa board thanked Botha for his contribution and wished him well with his future endeavours.

Oil rises after drone attack on Saudi Arabia disrupts Gulf calm

Oil rose for a second day after a drone attack on a Saudi Arabian oil field brought geopolitical risks back into focus, and as the prospect of more US-China trade meetings spurred some investor optimism.

Futures in New York advanced 1.2% after climbing 0.7% on Friday to cap the first weekly gain in three. Yemeni rebels attacked oil and gas facilities at Shaybah field in the southeast part of the kingdom over the weekend, although there was only a small fire and no disruption to production, Saudi Aramco said in a statement.

President Donald Trump said the US is talking with China on trade but suggested he wasn't ready to sign a deal yet.

Crude has fallen around 17% from a peak in late April as the US-China trade war intensified, casting a pall over the global growth outlook. While a series of attacks on tankers and energy facilities in the Middle East have provided some temporary support to prices, oversupply remains the key concern for the market. Meanwhile, there are signs Saudi Arabia is struggling to muster support for its bid to convince OPEC and its allies to cut production further.

The South African currency began Friday’s trading session on a firmer footing in tandem with improving global risk sentiment, buoyed by hopes of China stimulus.

Optimism sprouted from an announcement by China’s state planner that it will roll out a plan to lift disposable income in the period through 2020, after data last week signalled warning signs that US-Sino trade tensions are spurring consumer caution.

However, a bullish dollar on the one hand and idiosyncratic vulnerabilities on the other, saw these early movements come undone as the rand sank lower.

At close of local trade, ZAR quoted 0.25% weaker at R15.24/$, after trading in range of R15.16/$ - R15.30/$.

The rand traded marginally stronger this morning. Expected range today R15.10/$ - R15.40/$. - NKC Economics

Mixed signals dominated the news flow out of the US on Friday as recession concerns emanating from the inverted yield curve were countered by relatively positive news that trade talks between China and the US were progressing, RMB Global Markets Research economist Siobhan Redford noted in a market update on Monday. 

White House staff followed this up by suggesting they expect the US economy to continue on its current strong trajectory.

Beginning the week, protests in Hong Kong seem to have notched down a bit, and reports of new economic stimulus in China have added to the positive news that has seen a rally in Asian markets. The Nikkei is up 0.64%, the Hang-Seng 1.87%, the ASX 0.87% and China 1.47% as at the time of writing - a strong start to the week.

Naturally, any further news that suggests US economic weakness, Fed hawkishness, the intensification of protests in Hong Kong or a trade-talk break-down will reignite the risk-off rally seen last week.

Markets will keep a close eye on the July FOMC minutes, which will be released on Wednesday as well as FOMC Chair Jerome Powell’s remarks at the Jackson Hole Symposium later in the week for any signal as to the Fed’s next move.

Local markets are likely to follow the global ebbs and flows in response to news and, given the positive start to the week, the rand can also expect relative calm. July’s headline inflation number will be released on Wednesday.

We expect a moderation in headline inflation to 4.3% despite the inclusion of increased electricity and water tariffs as petrol price inflation moderated substantially in July.

Nonetheless, we don’t expect the SARB to cut interest rates anytime soon as the it remains concerned about the impact of increased fiscal spending on the economy. Domestic news that is likely to dominate markets this week though will be political in nature as concerns over CR17 funding remains front and centre and the president heads to parliament. 

Suffering emerging markets look to Fed's Powell to calm frayed nerves

Investors will be hanging on Jerome Powell's every word this week for clues as to whether the current nervousness gripping emerging markets is justified.

With stocks and currencies across the developing economies on the retreat, the Federal Reserve chairman’s address at the Kansas Fed's annual Jackson Hole gathering on Friday will be key to gauging whether US policymakers will add to July's so-called hawkish rate cut.

"Emerging-market risk assets tend to overshoot and undershoot fair value, with particularly large downside moves in the May-to-October time frame," they said, adding that more time and lower valuations are needed to win back investors.

With concern growing that the global economy is headed for a recession, emerging-market sovereign bond spreads are on course for the biggest monthly increase since 2012, while the average yield on hard-currency securities rose last week by the most since in a year. Estimated price-to-earnings ratios for stocks are near the lowest level since January.

A slight move weaker in the overnight session puts the rand back at just below the R15.30/$ mark this morning, Bianca Botes Treasury partner at Peregrine Treasury Solutions noted in a market update on Monday.

"Risk sentiment seems to be on the up as a glimmer of hope for stimulus lies on the horizon following the inversion of the US yield curve.

"At the same time, the Chinese central bank lowered corporate borrowing costs over the weekend following a slew of poor economic data.

"Data from the EU that includes current account and CPI numbers is due today," she said.

"We start the day at R15.29/$, R16.96/€ and R18.59/£, while the expected trading range for the day is R15.25 to R15.38."