Markets WRAP: Rand closes at R14.45/$

The rand closed at R14.45 to the US dollar on Friday afternoon, after a day's range of R14.1804 - 14.4681. Andre Botha, senior currency dealer at TreasuryOne, said the next couple of weeks could be expected to be "quite volatile" in view of the upcoming US Fed meeting and an ever-changing risk-on, risk-off sentiment in the market.

US equities declined, tracking a slump across Asia and Europe, as worries over global growth brought a downbeat end to a rocky week. Treasuries and the dollar jumped.

The S&P 500 Index dropped at the open, with all sectors under pressure, including a retreat in technology. The Stoxx Europe 600 Index headed for a second day in the red, after carmakers’ regional sales fell in November for the third month in a row.

Declines were tempered slightly on news that China will temporarily remove a retaliatory duty on US-imported automobiles.

Equities retreated across Asia, with shares in Hong Kong and Japan leading the sell-off after Chinese data reinforced concern about a slowdown in the world’s second-largest economy.

Lackluster data also sent the euro down, as France’s “Yellow Vests” movement exacerbated a decline in the region’s PMI data to the lowest in more than four years. The pound slid after European leaders  rebuffed Prime Minister Theresa May’s pleas to help her sell her Brexit agreement to a skeptical British parliament.

Sentiment remains fragile as the week draws to a close, one in which investors initially took some comfort from encouraging signs in the global trade battle. Growth concerns came back into focus, however, after European Central Bank President Mario Draghi said economic risks were moving to the downside, while in China retail sales and industrial production figures for November fell significantly short of estimates.

The weak readings from Europe on car sales and manufacturing simply added to the gloom.

"There’s a lot of heavy things going on out there reflected in markets - the long, protracted one is the trade disputes that are going on," Rich Sega, global chief investment strategist at Conning & Co., said at an interview at Bloomberg’s New York headquarters. "We see a little bit of light maybe after one meeting, and then it gets pulled back with rhetoric back-and-forth. That’s a give-and-take that, I think, will in the long-term outlook resolve favorably, but right now feels heavy."

Elsewhere, West Texas crude and gold edged lower. - Bloomberg

The UK has yet to leave the European Union, but many stock investors have already said goodbye. The nation’s equity funds have lost $9.8 billion in 2018, on course for the worst year of redemptions on record, according to a Bank of America Merrill Lynch note, which cited EPFR Global data.

In the past week through December 12, UK stock funds saw an outflow of $1.7 billion, Jefferies Financial Group said. The FTSE 100 Index earlier this month erased its 21st-century advance as the global equity sell-off added to concerns that UK Prime Minister Theresa May will struggle to get her Brexit plan through the Parliament.

This week, investors were shocked by May’s cancellation of the Brexit deal vote and a revolt against her leadership of the Conservative Party. The country’s benchmark gauge is down 11% this year, set for the worst annual decline since 2008.

In the latest dramatic chapter of the Brexit negotiations, European leaders rejected May’s pleas to help her sell the deal to a skeptical UK Parliament, toughening their stance as they stepped up plans for a chaotic no-deal divorce. - Bloomberg

OVERVIEW: US equity futures and European stocks dropped, tracking a slump across Asia as worries over global growth brought a downbeat end to a rocky week. Treasuries and the dollar jumped.

The Stoxx Europe 600 Index headed for a weekly loss, led lower by carmakers after regional sales slumped in November for the third month in a row. S&P 500 futures also pointed to a drop at the open, though both declines were tempered somewhat on news that China will temporarily remove a retaliatory duty on US-imported automobiles.

Earlier equities had slumped across Asia, with shares in Hong Kong and Japan leading the retreat after a slew of Chinese data reinforced concern about a slowdown in the world’s second-largest economy. Lackluster data also sent the euro down, as France’s “Yellow Vests” movement exacerbated a decline in the region’s PMI data to the lowest in more than four years.

The pound slid after European leaders rebuffed Prime Minister Theresa May’s pleas to help her sell her Brexit agreement to a skeptical British parliament. Sentiment remains fragile as the week draws to a close, one in which investors initially took some comfort from encouraging signs in the global trade battle. Growth concerns came back into focus, however, after European Central Bank President Mario Draghi said economic risks were moving to the downside, while in China retail sales and industrial production figures for November fell significantly short of estimates. The lackluster readings from Europe on car sales and manufacturing simply added to the gloom.Elsewhere, West Texas crude edged lower. Emerging-market shares and currencies sank. - Bloomberg

The rand tumbled in early trade on Friday, Bianca Botes, corporate Treasury Manager at Peregrine Treasury Solutions said. This as news of reduced growth and inflation projections in the EU, grim data from China and an anticipated US interest rate hike all took its toll. By 11:00, the rand had lost more than 1.3% against the greenback, trading at R14.38.

By 11:52, it was trading at R14.37 with a day's range of R14.18 to R14.39.

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions says politics was the dominating theme in the markets.

"Throughout 2018, the dominating theme in the markets has remained politics, and the seesaw week we have had was no different. The emerging markets kicked the week off on the back foot, as risk sentiment trickled out of the market.

"The same core uncertainties have persisted this year with Brexit and the trade war remaining centre stage and will continue to do so as we head into 2019.

"The rand took little time to weaken to R14.45/$ earlier this week, initially signalling a break above R14.50. The momentum was, however, short lived as lower-than-expected US inflation figures caused the dollar to tumble.

"Although a quiet week on the data front, CPI released both locally and in the US changed the scene dramatically mid-week. While local inflation accelerated to 5.2%, indicating that another interest rate hike by the Monetary Policy Committee is likely in early 2019, US inflation remained flat at 2.2%, reassuring markets that the US rate hiking cycle is coming to an end.

"Retail sales figures in South Africa surpassed expectations, gaining 2.2% year-on-year. In other local data, gold production saw a decline of 15.1% while mining production increased by 0.5% in October, with manufacturing production increasing by 1.1% – a welcome positive development following very poor performance from the local manufacturing sector throughout 2018. 

"Jobs data from the US continues to be soft, with initial jobless claims topping expectations slightly to come in at 166k. Today we will look to the ECB as well as US retail and manufacturing figures to lead the charge on the data front.

"While business slowly winds down to enter the festive season, the global political landscape isn't showing signs of the slowdown at all, with Brexit and the trade war still hanging in the balance ensuring a continuous oversupply of uncertainty.

The rand is, however, expected to remain fairly rangebound, targeting levels of R14.08 to R14.25."

What we're waking up to: The rand is weaker this morning, changing hands at R14.23 to the greenback.

TreasuryONE said in a morning note to clients, "The major currencies traded in fairly tight ranges yesterday as markets looked for fresh news on the direction for the dollar. The euro lost small ground after the ECB left rates unchanged and Draghi’s dovish comments on the outlook for the Euro zone.

"The Pound is holding steady this morning despite the EU’s hardline stance on Brexit. The rand is weaker ... in line with Turkey and other EMs. The local currency still seems to be affected by Eskom concerns as well as Trade War tensions and liquidity shortages.

"Global equity markets are relatively flat while US Treasury yields closed a touch higher. Trump once again stated that the Fed should not be hiking rates any further however the market still expects a hike later this month."