Markets WRAP: Stocks retreat amid Hong Kong, Argentina turmoil
Stocks retreat amid Hong Kong, Argentina turmoil
Todd White, Bloomberg
US equity futures edged lower and stocks slumped in Europe and Asia on Tuesday as turmoil in Hong Kong and Argentina spooked investors already on edge over the trade war.
Gold and silver rallied, while the dollar nudged higher as a measure of American consumer prices unexpectedly accelerated in July.
Contracts on the three major US equity gauges turned lower after erasing declines several times, while the Stoxx Europe 600 Index fell for a third day as automakers and retailers slid.
Disappointing investor sentiment data in Germany compounded the risk-off mood, and the DAX Index extended its drop.
Asia’s benchmark retreated the most in a week, with Hong Kong stocks the worst hit as anti-government protesters again crippled the airport and the city’s leader warned it risked sliding into an “abyss.”
Japan’s Topix gauge erased this year’s gain as it reopened following a long weekend. The yen was steady and gold briefly broke above $1 530 an ounce. China’s 10-year bond yield touched 3% for the first time since 2016 as data showed credit demand in the country dropping.
Oil snaps three-day gain as sell-off counters crude inventories
Sharon Cho, Bloomberg
Oil snapped a three-day gain as a sell-off in risk assets added to lingering trade tensions to dent the demand outlook, countering a forecast decline in US crude stockpiles.
Futures slid as much as 0.8% in New York after rising 7.5% the past three days. Asia stocks fell, while the dollar firmed, making commodities priced in the US currency less attractive to investors.
American inventories probably dropped by about 2.3 million barrels last week, according to the median estimate in a Bloomberg survey before Energy Information Administration data Wednesday.
Oil is still down more than 6% so far this month as fears the US-China trade war will escalate and dent demand overshadow concerns energy flows from the Middle East may be disrupted. Russia aims to continue its cooperation with the Organization of Petroleum Exporting Countries in the interests of the oil market, the nation’s energy ministry said in a statement, adding that growing uncertainties about the trade dispute is having an impact.
“There’s still a lot of uncertainty lying ahead because of the US and China’s trade war developments,” said Sungchil Will Yun, a commodities analyst at HI Investment & Futures Corp. “Oil is pacing itself on demand fears after rallying from the possibility of tighter supply.”
We have seen gold hit a 6-year high earlier this morning with gold trading at $1524.00 per ounce which is also an indication of the risk-averse nature of the market at the moment, Andre Botha, senior dealer at TreasuryONE noted in a market update.
"With the market being a little devoid of data today, the rand will be at the mercy of global developments and risk sentiment. From early morning trade, it looks like the rand is odds on to test the previous high of yesterday again," he added.
"This morning we have seen equity markets closing deep in the red all over the world which does not bode well for the EM currencies today with 'risk-off' firmly in control.
"We have seen the rand trading back up near the R15.3500 level after drifting back to R15.2500 in early morning trade. The equity, as well as the EM currency market clearly expresses the state of the world at the moment, with geopolitical tensions, global growth concerns and global economic worries on the front pages everywhere," Botha said.
Ramaphosa and Mkhwebane battle will continue to weigh on sentiment
On Monday President Cyril Ramaphosa was granted an interdict to stay the implementation of Public Protector Busisiwe Mkhwebane’s remedial actions as recommended in her CR17 report against Ramaphosa.
The judge also ruled that the president’s challenge to the PP’s report will be expedited but did not address Ramaphosa’s request for his bank statements and e-mails to be sealed until the lawfulness of how they were obtained is established.
The ongoing battle between the PP and the president will continue to weigh on sentiment, further delaying investment decisions and putting more downside risks to our 0.5% growth for the year.
- Mpho Tsebe, RMB Global Markets Research economist
Rand weakens to 11-month low - NKC Economics
The rand extended losses on Monday, reaching its weakest level in 11 months, as domestic political uncertainty compounded global risk-off sentiment entrenched in US-Sino trade uncertainty.
Markets remained cautious after US President Trump indicated on Friday that a round of trade talks scheduled for September may not proceed.
At close of local trade, ZAR quoted 0.9% weaker at R15.35/$, after trading in range of R15.22/$ - R15.46/$.
ZAR traded steady overnight.
Expected range today R15.10/$ - R15.40/$.
Asian markets sink as investors hit by perfect storm of crises
Markets retreated in Asia on Tuesday as uncertainty over the China-US trade talks was compounded by increasing tensions in Hong Kong and an economic crisis in Argentina.
Investor confidence has been knocked this month by a perfect storm of negative issues, only slightly offset by hopes for further central bank easing measures as the global outlook dims.
Comments from Donald Trump throwing next month's planned trade talks into doubt, as well as his decision to unveil more tariffs on Chinese goods, sent equities tumbling last week and analysts at Goldman Sachs have said they do not expect a deal before the 2020 US presidential election.
The Wall Street titan also warned the standoff could hit US growth, while Treasury yields plunged in a sign of growing concerns for the country's economic health.MORE HERE
Absa posts half-year earnings growth of 3%
Absa has posted earnings growth of 3% for the first half of 2019, it was bolstered mainly by its South African retail and business banking unit.
The group on Tuesday released its unaudited financial results for the half-year ended June 30, 2019. According to a shareholder notice the earnings were normalised to account for the consequences of separating from Barclays.
Although the group posted a 3% growth in headline earnings to R8.3bn, Absa's Return on Equity (RoE) decreased to 16.4% compared to the 17.1% reported for the same period in 2018.
"While Absa's return on equity is likely to be marginally lower in 2019, the group remains committed to its RoE target of 18% to 20% in 2021," said Jason Quinn, Absa group financial director.
"Despite the tough operating environment, we have been able to maintain revenue momentum in our key target areas, with total revenue growth improving to 6% [to R39.1bn]," Quinn said. Absa declared a dividend of R5.05 per share, up 3%.MORE HERE
ICYMI: Rand falls by over 1% against the dollar, has 'nowhere to hide'
The rand weakened by over 1% against the dollar on Monday morning, compounding losses incurred last week. At 11:20 the local currency was trading at R15.43 to the greenback, after opening the day at R15.26/$. In a morning note to clients Bianca Botes of Peregrine Treasury Solutions said risk-off sentiment caused by the US/China trade war was impacting the rand.
"Donald Trump’s comment on Friday that trade talks with China due to start on 1 September might be cancelled, after also having announced additional tariffs on China, is adding pressure to the fragility of investor sentiment." This is despite indications that the rand is "oversold at these levels and that a retracement is on the cards", she said.MORE HERE
Rand recovers slightly
The rand remains the black sheep as the selloff of emerging market currencies continues, says Bianca Botes, treasury partner at Peregrine Treasury Solutions.
The local unit has weakened more than its peers against the dollar in recent days.
"The dire state of the SA economy has nowhere to hide anymore with the bias leaning towards an imminent sovereign credit rating downgrade," Botes says.
"On Monday, the rand hovered near 11-month lows, before retracing in overnight trade. Safe haven assets such as gold are peaking on the back of the weak sentiment, and we see the gold price touching on a six-year high.
"Risk aversion due to weak growth and uncertainty continues to plague the market, while poor local data only adds fuel to the fire," she adds.
On Tuesday UK employment figures and US cinsumer inflation and real earnings data is to be released.
"The recovery in the rand in the overnight session confirms the notion that the rand is oversold, however the uncertainty in global markets is doing little to assist a meaningful run by the local unit," Botes concludes.