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Markets WRAP: Rand closes at R14.37/$, averaging between R14.28 and R14.44

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12 Nov 2018

The rand closed the day at R14.37 to the greenback on Monday afternoon, averaging between R14.28 and R14.44. TreasuryONE said earlier that the rand was trading at Friday's weaker levels along with other emerging markets on the back of a stronger dollar.

12 Nov 2018

OVERVIEW: U.S. stock futures turned lower and shares dropped in Europe and most of Asia on Monday as investors struggled to drum up any optimism after a roller coaster few weeks. The dollar rose, oil halted a 10-day sell-off and the pound slid as the U.K.’s premier fought to save her Brexit divorce plan.

Futures on S&P 500, Dow and Nasdaq all slipped after giving up early gains, after large-cap technology shares on Friday had dragged the Nasdaq down 1.7%. The Stoxx Europe 600 Index’s decline was led by tech and personal goods shares. The benchmark gauge in Asia retreated, though stocks in Japan and Hong Kong finished in a tight range and those in China jumped.

The dollar rallied versus most of its major peers and crude oil advanced as OPEC and its allies started laying the groundwork to cut supply in 2019. The pound declined for a third day as pressure built on Theresa May to ditch her Brexit plan, while the euro slumped to its weakest level in more than 16 months ahead of more potential stress around Italy’s budget.

Italian bonds fell as most euro-zone debt edged higher, while Treasuries didn’t trade because of a U.S. federal holiday. Investors have a lot on their plate right now, from deciding whether the recent earnings season was a peak to watching Brussels, where the European Commission is ready to escalate a battle with Italy over its budget deficits, and China, which produces key economic data on Wednesday.

There’s also a renewed debate on the direction of bond yields - traders have been dialing down inflation expectations before U.S. consumer price data on Wednesday, which may offer the next clues on the trajectory of borrowing costs.

“With emerging Asian stocks in official bear market territory, and developed market stocks down around 10% from their peaks, the question as to whether this is ‘The Big One’ is pressing,” Toby Nangle, global head of asset allocation and EMEA multi-asset chief at Columbia Threadneedle, wrote in a note. “Our answer is that it is unlikely, but the risks on our horizon are sufficient to give us caution."

Elsewhere, emerging-market stocks and currencies fell. Bitcoin headed for its first advance in three sessions. - Bloomberg

12 Nov 2018

Emerging markets are already contending with U.S.-China trade tensions, policy tightening in developed countries, and a resurgent dollar. Higher oil prices are exactly what they don’t need right now.

But that’s what they may get as the year draws to an end. With crude oil in a bear market, Saudi Arabia said OPEC and its allies should reverse about half the increase in output they made earlier this year as fears of shortages are supplanted by concerns about oversupply and collapsing prices. Oil futures in New York climbed as much as 1.6%.

Rising oil prices risk fueling inflation, raising import bills and forcing tighter monetary policy in developing nations that buy crude. They may also weigh on global growth, hitting even those countries that export the commodity. - Bloomberg

12 Nov 2018

Dollar bears may want to hibernate this winter. Although many currency strategists see the greenback resuming its downtrend in 2019, some are advising investors to keep their powder dry for now.

The Bloomberg dollar index climbed as much as 0.6% Monday and touched its strongest level in almost 18 months. The greenback was buoyed last week by a decline in U.S. stocks and signals from the Federal Reserve that it doesn’t plan to budge from its tightening path, and received further impetus Monday as political risks helped drag down the euro and pound.

The “king dollar” trend may have room to run, Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole, said in an interview last week. With the Fed expected to continue raising rates into 2019, the U.S. currency may remain strong well into the first quarter.

“You may see a gradual grind higher, even though it will fall well short of the lofty highs of late 2016, early 2017,” he said about the greenback. He emphasised that it will do best against currencies with more exposure to China, such as Australia’s and New Zealand’s, but warned “the dollar is close to peaking, and the longer-term risks 6-to-12 months out seem to be on the downside.”

Kit Juckes, global fixed-income strategist at Societe Generale, also doubted the dollar’s good vibes are drying up. Between the U.S. economy still running hot, a tightening labor market and a Fed that’s “unlikely to give any hint that they are approaching peak rates for several quarters,” dollar bears have plenty of hurdles to clear, Juckes said in a November 8 note.

The currency is overvalued and market is positioned long, which suggests a correction is likely in 2019, Juckes wrote. In the meantime, however, he is “wary of jumping the gun.”

Ben Randol, senior director of currency strategy at Bank of America, expects the dollar will weaken next year as U.S. economic growth cools, he said in an interview last week. But it may find support from Brexit difficulties, the threat of deeper Italian fiscal crisis and U.S.-China trade tensions.

“Timing is very difficult,” Randol said “Given the risks, it can be a challenge to have conviction high enough to short the dollar.”

The turning point may arrive near the end of the first quarter when political risk bubbles up again around U.S. government spending, Credit Agricole’s Marinov said. Plus, the U.S. midterm election results may stymie additional fiscal stimulus measures.

A pause in Fed rate hikes some time around the middle of 2019 and the start of rate increases in Europe could also factor in. “We think that growth will moderate, especially given that the prospects for further aggressive fiscal stimulus may wane now that political gridlock has returned to Washington D.C. and the global growth headwinds have intensified,” he said.

By the end of next year, the euro could be back above $1.26 from around $1.13 at the moment, while the dollar-yen rate, which is close to 114, could be below 104, he said. That could see the dollar index return to levels last seen in late 2017 and early 2018, according to Marinov. - Bloomberg

12 Nov 2018

Political risks gathering across Europe are back to haunt investors. The euro slumped to its weakest level in more than 16 months as the European Commission looked ready to escalate its budget battle with Italy. Meanwhile, the pound slipped the most in more than a month as pressure mounted on U.K. Prime Minister Theresa May to abandon her Brexit divorce proposal or face defeat in parliament.

The euro and the pound have both declined more than 4% this year against the dollar as Italy’s political turmoil, the U.K.’s so-far evasive Brexit divorce deal and the European Central Bank’s accommodative monetary policy damp appetite for the currencies. Traders fear that the string of soft economic data may force the Governing Council to lower its economic growth projections at its December meeting, with Goldman Sachs saying that policy makers could be forced to delay the start of rate increases if the slowdown is worse than anticipated.

The euro declined 0.7% to $1.1259, its weakest level since June 2017, while the pound slid 0.8% to $1.2865. Hedge funds and other speculators increased their short positions on the euro by 14,181 contracts in the week ended November 6, taking the total to 46,843, the most bearish since March 2017.

A sovereign investor that had supported the euro above $1.1300 in late October by holding a double no-touch structure was absent Monday as the option seems to have expired, according to a Europe-based trader who asked not to be named because the person isn’t authorised to speak publicly.

The drop was exacerbated by thinner demand around the euro’s August low of $1.1301 and a number of stop-loss trades. In focus now for the currency is key technical support at $1.1187, which represents the 61.8% Fibonacci retracement of its gains since early 2017.

In Italy, Deputy Premier Matteo Salvini said Sunday his government could halt European Union budget decisions and other policies if the bloc’s partners continue to show disrespect to his countrymen. In London, May’s cabinet had been expected to meet as soon as Monday to sign off on May’s plans, but late on Sunday there was no sign of further progress, according to three people familiar with the matter.

If May wants a deal sealed in November, this week is probably the last chance to corral her divided Cabinet. The euro’s 40-day correlation with the pound has been steadily creeping higher and is now at 0.80, suggesting the two are moving pretty much in lock-step.The euro’s weakness propelled the dollar higher for a third day, with the Federal Reserve on track for its fourth 25-basis point hike this year in December. Producer prices in the U.S., the world’s largest economy, accelerated in October, suggesting consumer-price inflation may pick up down the road. - Bloomberg

12 Nov 2018

The pound’s strong start to November has taken a turn for the worse as hopes for a Brexit divorce deal fade. Sterling plunged 1% and U.K. government bonds climbed amid reports of pressure on Prime Minister Theresa May to drop her Brexit plan or face defeat in Parliament.

Failure to reach an agreement ahead of a European Union summit in December would leave little time to stop the U.K. crashing out of the bloc in March. That has pushed the two sides to edge closer to a deal, but the compromises have led to domestic opposition that could derail the chances of getting it through Parliament.

“With Brexiteers and Remainers increasingly opposed to the plans being worked upon by May the chances of Parliamentary approval seem to be diminishing by the day, risking a political crisis,” said Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce.

“As a consequence, we can expect sterling to continue to take the strain.”

The pound fell 1% to $1.2849 by 11:10 in London, in the biggest drop since mid-September. Sentiment in the options market has also grown more bearish, with risk reversals more in favor of pound puts. Yields on 10-year gilts fell five basis points to 1.44%, the lowest since October.

May’s Cabinet remains divided over her strategy, with transport minister Jo Johnson resigning last week and four other ministers reportedly on the verge of quitting. Pro-Brexit Conservative lawmakers and the Northern Irish party that props up May’s minority government have threatened to reject the current deal, while influential opposition figure and Mayor of London Sadiq Khan urged his Labour party to oppose it.

A rejection by lawmakers throws open the risk of May having to go back to the negotiating table with little time left, being forced to hold a second referendum or even to call a general election, any of which could spark a slide in the pound.

“If the market begins pricing no deal, with no sign of progress being made, we’d probably be close to $1.20,” said Derek Halpenny, MUFG’s European head of global markets research. - Bloomberg

12 Nov 2018

Indian equities drop after weekly gains as oil-supply cut weighs

Indian equities dropped, reversing earlier gains, as a plan by major oil producers to cut supply to boost the fuel’s price weighed on sentiment.

The benchmark S&P BSE Sensex Index dropped 1% to 34 812.99 at the 15:30 close in Mumbai, after capping its first consecutive weekly gains in two months.

Twenty-six of the 31 Sensex members fell on Monday, paced by a 4.6% decline in Tata Motors after its Jaguar Land Rover unit reported a drop in October sales from a year earlier.

Even after oil – India’s biggest import – entered a bear market last week, investors assessed how a plan by producers to cut supply may affect the nation’s economy and corporate profits.

FULL STORY

12 Nov 2018

Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM said in a morning note to clients, ‘‘How investors react to the news that the dollar has climbed to another 2018 high early on Monday morning and whether this changes their approach towards emerging markets is going to play a major role in how emerging market assets perform this week. 

"The stronger dollar does represent risks for renewed weakness in the rand. Another driver that is going to influence the performance of global financial markets now that the mid-term elections in the United States are out of the way,  is speculation being raised over whether President Trump was sincere with his promising comments that a trade deal with China could be on the horizon for later this month. 

"Concerns are beginning to mount that there is some skepticism over a trade deal being close to conclusion, which is another risk for emerging markets to contend with because it naturally discourages investor appetite from investing in riskier assets.’’

12 Nov 2018

OVERVIEW: Stocks turned lower in Europe and U.S. futures pared their early gains on Monday, tracking declines across most of Asia as investors weighed the outlook for equities after a roller coaster few weeks. The dollar strengthened, oil snapped a 10-day sell-off and the pound slid as the U.K.’s prime minister fought to keep her Brexit divorce plan alive.

The Stoxx Europe 600 Index’s decline was led by household goods and real estate shares, after the main Asian equities gauge dropped. Shares in Japan and Hong Kong finished in a tight range, while those in China jumped.

Futures on the S&P 500 edged up while those on the Nasdaq climbed after large-cap tech shares on Friday dragged the gauge down 1.7%. Contracts on the Dow were flat. The dollar jumped versus most of its major peers and crude oil advanced as OPEC and its allies started laying the groundwork to cut supply in 2019.

The pound declined for a third day as pressure built on Theresa May to ditch her Brexit plan or face a catastrophic defeat in Parliament. Yields on euro-zone bonds edged lower while Treasuries didn’t trade, thanks to a U.S. holiday. Investors are weighing whether the most recent earnings season could prove to be a peak, as they turn their focus to Brussels, where the European Commission is ready to escalate its budget battle with Italy, and to China’s economy, which produces key monthly data on Wednesday.

There’s also a renewed debate on the direction of bond yields, with investors dialing down inflation expectations. U.S. consumer prices due this week may offer further hints on the trajectory of borrowing costs.

“The relative valuations that we’re seeing across a number of equity markets around the world, compared to what we think the bond market is going to do, does suggest an overweight in global equities makes sense,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments, which oversees $735.5 billion for clients.

“But that does require there to be no big policy errors” from central banks, he told Bloomberg TV in Hong Kong. Elsewhere, the offshore yuan held on to last week’s drop, with little sign of an end to the U.S.-China trade war in the wake of the midterm elections. - Bloomberg

12 Nov 2018

China’s policy makers are expected to increase the budget deficit in the coming year, as a slowing economy and the downdraft from the trade war with the U.S. raise the need for a more active fiscal policy.

Authorities will increase the budget deficit target to between 2.6% and 3% of economic output, up from 2.6% this year, according to 21 of 28 economists in a Bloomberg survey.

The remainder forecast a deficit higher than 3% of gross domestic product. The quota for off-budget government bonds - used in particular to finance stimulus via infrastructure investment - will be at least 1.35 trillion yuan ($194 billion) - the same or higher than this year, the survey showed.

China’s economy slowed more than expected in the third quarter as a funding squeeze combined with the uncertainty brought about by the trade war with the U.S. While policy makers have taken a series of steps to shore up the expansion, from easier credit policy to multiple cuts to banks’ reserve requirement ratios, high debt levels make broad-based stimulus less likely.

"For the coming period, China has a very difficult act to balance between reining in domestic risks, for example in terms of excessive debt, and keeping growth on track in order to secure social and financial stability," said Bjorn Giesbergen, an economist at Rabobank. The U.S. is set to increase the tariffs on $200 billion worth of imports from China to 25% in January, unless a breakthrough on trade relations between the two nations can be achieved before then.

Of the 28 economists surveyed, 19 estimated that the 25% tariffs would cut 2019 growth by between 0.2 percentage point and 1 percentage point, with six seeing a lower impact and 3 forecasting a shaving of more than 1 percentage point.

The median estimate for 2019 real economic growth in a separate Bloomberg survey is 6.2%.

The People’s Bank of China will refrain from aggressive stimulus measures such as cutting benchmark lending interest rates or loosening property purchase rules, the surveyed economists said. Any policy maneuver will be consistent with easing steps taken this year, such as cutting taxes and injecting cash via reserve-ratio cuts, they said.

The tax reduction measures would most likely come via lower rates for value-added tax and corporate income tax, and the reductions could lift growth by 0.1 to 0.3 percentage point, according to the economists - much less than the potential hit to growth from tariffs. - Bloomberg

12 Nov 2018

Oil pares bear market collapse on prospect of OPEC curbs in 2019

Oil has climbed after a record run of losses as Saudi Arabia said it will reduce crude sales in December and speculation rose that OPEC and its allies will cut output next year.

<p><strong>Oil pares bear market collapse on prospect of OPEC curbs in 2019</strong></p><p>Oil has climbed after a record run of losses as Saudi Arabia said it will reduce crude sales in December and speculation rose that OPEC and its allies will cut output next year.</p>
READ MORE

12 Nov 2018

Emerging markets give up gains after mid-terms, Fed rates decision

Emerging-market stocks and currencies retreated after the Federal Reserve indicated it will keep raising rates, sending the U.S. dollar higher and damping a post-midterm rally.

MORE HERE

12 Nov 2018

Woolworths board changes

Woolworths on Monday issued a shareholder notice on changes to its non-executive directors as well as succession.

According to the notice - Hubert Brody has been appointed as deputy chairman of the board with effect from Monday, November 12, 2018.

Simon Susman (chairman of the Board) and Tom Boardman (lead independent director) will step down from their respective positions with effect from the conclusion of the 2019 Annual General Meeting (AGM), each having respectively served a nine year term, the notice read.

It is anticipated that the board will appoint Hubert as chairman of the board and Zarina Bassa as the lead independent director with effect from the conclusion of the 2019 AGM.

Also at the conclusion of the 2019 AGM, Simon will become Honorary President, following his stepping down as a director.

He will provide support and advice to the board and continue his deep association with the group by devoting his time to the continued advancement of Woolworths' participation in civil and corporate society, the notice read.

12 Nov 2018

Growth on track to average 0.6% for 2018

Market outlook from RMB economist Mpho Tsebe:

The global data calendar is relatively empty this week.

The key release is US CPI data on Wednesday. Consumer prices are expected to have risen by 2.4% y/y in October, up from 2.3% in September.

Investors will also closely monitor Brexit deliberations for clues on whether a draft Brexit deal will be reached in this week’s negotiations. We are also likely to see another budget showdown as Italy presents revised revenue and spending proposals to the EU on Tuesday.

The initial budget proposal was rejected for breaching the EU’s 3% deficit limit in 2020. 

Locally, the retail sales and wholesale data due for release on Wednesday and Thursday will provide us with the last set of high frequency data for the third quarter. We expect retail sales to have contracted by 0.1% m/m in September.

Despite the decrease, retail sales will still contribute positively to growth in 3Q18.

Following last week’s mining and manufacturing data, the rebound in 3Q18 growth is likely to print around 1.5% q/q saar – barring any surprises from the agriculture sector.

This means that annual growth is still on track to average around 0.6% for 2018. 

12 Nov 2018

Oil looms over emerging markets as US-China trade hopes dim

Falling oil prices are fast becoming a catalyst for emerging markets.

Last week’s slide in crude was partly behind the weakness in the Russian ruble, Mexican peso and Malaysian ringgit, according to Societe Generale SA.

With oil wallowing in a bear market, OPEC and its allies gathered in Abu Dhabi on Sunday to weigh production cuts.

"Oil-importing emerging economies’ currencies would likely react negatively to a cut in OPEC output given Iranian oil exports are already likely to wane over time under the impact of US sanctions," said Mansoor Mohi-uddin, the Singapore-based head of foreign-exchange strategy at NatWest Markets.

FULL STORY

12 Nov 2018

Tokyo stocks open lower on worries over global economy

Tokyo stocks opened lower on Monday tracking falls on Wall Street last week amid lingering worries over global economic growth.

The Nikkei 225 index was down 0.55%, or 121.75 points, at 22 128.50 in early trade, while the broader Topix index was down 0.50%, or 8.30 points, at 1,664.68.

"Flagging growth in China revived global growth concerns," Stephen Innes, head of trading for Asia-Pacific at OANDA, said in a commentary.

MORE HERE

12 Nov 2018

Data releases this week:

NKC Economics and RMB give a breakdown of the data releases scheduled this week, and their expectations.

Monday - Monday US Fed's Daly speaks on the economic outlook at 21:30,    Namibia CPI 

Tuesday – Japanese GDP figures for October, US monthly budget statement at 21:00.

Wednesday – We expect South African retail sales growth will moderate to 1.8% y-o-y in September from +2.5% y-o-y in August, US CPI, Ghana CPI, Nigeria CPI.

Thursday - US headline CPI should rise 0.3% m-o-m in October, led by a jump in energy prices. This would lift the y-o-y rate to 2.5%, reversing part of the deceleration reported last month when the annual pace slowed to 2.3% in September from 2.7% in August.

Friday - Botswana CPI

12 Nov 2018

Rand on the backfoot

The rand starts this week slightly on the back foot, opening at R14.30/$ after reaching lows of R14.36 in overnight trade, Bianca Botes, corporate treaury manager of Peregrine Treasury Solutions said in a market update.

The weakness comes from both a correction to last week’s overreaction when the rand moved to levels as low as R13.98, coupled with a recovery in the US dollar following the mid-term elections.

The hawkish stance of the Federal Reserve is also weighing down emerging market currencies.  

We face a quiet two days ahead in terms of economic data, and politics will therefore set the tone for currency trade. It is going to be interesting watching the effect of the Democrats leading the charge in the House of Representatives play out in the US.  

The range for Monday is expected to be R14.17 to R14.46. 

Analysts from NKC Economics expect the local currency to trade within the range of R14.15/$ and R14.45/$. 

12 Nov 2018

Brexit and Italy in focus

The dollar is holding on to it’s firmer levels against the euro and pound this morning at 1.1320 and 1.2925 as Brexit and Italy are firmly in focus this week, TreasuryONE noted in a market update on Monday morning.

Theresa May is once again facing resistance from inside her own party over her Brexit plans while the Italian government needs to submit it’s revised budget tomorrow.

The rand is also trading at Friday’s weaker levels along with other emerging markets, having opened at R14.30/$.

Wall street fell on Friday and Asian equity markets have followed suit. Gold has taken a beating since Friday is is currently at $1209.33 while Brent is up slightly as OPEC hints at possible output cuts.

Today is a US holiday which could see trading being subdued. 

Market indicators at open:

USDZAR 14.2989

EURUSD 1.1319

EURZAR 16.1769

GBPUSD 1.2931

GBPZAR 18.4807

AUDZAR 10.3273

CADZAR 10.8403

CNYZAR 2.0528

ZARJPY 7.9649

CHFZAR 14.1967

Gold  1 210.28 

Plat 851.65 

Plad 1 121.10 

Rhod  2 450.00 

Irid  1 470.00 

Ruth  268.00 

Copp  6 078.50 

Brent  71.38 

Gold ZAR 17 298.29 

Plat ZAR  12 172.46 

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Rand - Dollar
18.91
+0.1%
Rand - Pound
23.87
+0.1%
Rand - Euro
20.38
+0.2%
Rand - Aus dollar
12.31
+0.2%
Rand - Yen
0.13
+0.1%
Platinum
908.05
+1.2%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent-ruolie
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
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