Markets WRAP: Rand closes at R15.34/$

US stock futures decline as Hong Kong sours mood

US equity futures reversed an advance on Monday alongside European stocks as mounting unrest in Hong Kong weighed on investor sentiment. Treasuries and the yen extended gains while gold and the dollar both turned higher.

Contracts for all three main US equity indexes retreated after Hong Kong airport authorities cancelled remaining flights for the day. A Chinese official said the city was at a "critical juncture" and that there were signs of "terrorism."

The change in mood wiped out the Stoxx Europe 600 Index's jump of as much as 1%. Stocks had earlier increased in Shanghai and edged higher in South Korea and Sydney, though Hong Kong shares dropped and many other markets across Asia were shut for a holiday.

The yen extended its rally for a fourth day, while the offshore yuan nudged lower as China's central bank fixing continued to signal its determination to manage an orderly depreciation. Italian bonds led gains in European debt after Fitch affirmed the country's credit rating on Friday. The pound strengthened following three sessions of declines.

Naspers leads $125m in funding for Indian e-commerce platform Meesho

Naspers has taken the lead in raising $125m in funds for India's Meesho, an e-commerce marketplace. 

Other investors include Facebook, SAIF, Sequoia, Shunwei Capital, RPS, Venture Highway and former Vodafone Group CEO Arun Sarin. 

Oil declines as trade tensions continue to stoke demand fears

Heesu Lee and Grant Smith

Oil dropped as US President Donald Trump said planned trade talks with China next month could be called off, stoking concerns the deepening dispute will damage global growth.

Futures lost as much as 1.8% in New York, snapping a two-day gain, as a stronger dollar curbed the appeal of commodities priced in the US currency. Trump’s threat to cancel negotiations came after the International Monetary Fund on Friday warned of downside risks to the Chinese economy if trade tensions escalate.

Crude rallied late last week after Saudi Arabia signalled it would seek to halt the price slump, and constrain its exports next month. Still, prices are down this month because of fears the US-China spat may expand into a currency war.

The International Energy Agency on Friday trimmed its forecasts for oil-demand growth this year and next, and warned that it may lower the estimates further as the trade conflict drags on.

“Oil is facing severe global headwinds at the moment from the escalation of the trade war, weak macro data and a strong US dollar,” said Jens Naervig Pedersen, a senior analyst at Danske Bank A/S in Copenhagen. “It is difficult to see what can break the downward spiral near-term as the market seems to be waiting for the next round of bad news.”

Rand is bruised and battered - economist 

"The rand was bruised and battered last week following a spate of negative domestic news flows and an escalation in US-China trade tensions," RMB Global Markets Research economist, Mpho Tsebe noted in a market update.

"The rand has been on the back foot since Moody’s released a statement that the additional Eskom bailout made available through the Special Appropriation Bill is credit-negative for SA.

"This was followed by news that Fitch Rating Agency revised the country outlook to negative from stable, only to be exacerbated by worsening trade relations between the US and China, as negotiations broke down," she said.

"The rand closed Friday’s trading session 3.1% weaker relative to the week before, making it the worst-performing emerging market currency. In contrast, peer currencies like the Brazilian real and Argentine peso closed the week 1.3% and 1.5% weaker," Tsebe said.

On a year-to-date basis, the rand has depreciated by 5.9%, making it the third worst-performing emerging market currency, behind the Argentine peso and South Korean won that have weakened by 16.9% and 7.8% year-to-date.

"The rand and other emerging market currencies remain vulnerable to risk sentiment, as the escalation in trade tensions between the US and China has reignited fears of the US economy falling into a recession," Tsebe added.

"The weaker currency is offsetting the benefits emanating from falling Brent crude prices. The daily fuel price, as reported by the central energy fund, shows that the price of 95 unleaded petrol will increase by about ten cents in September, following the 11 cents increase in August.

"This is because the 10.2% month-to-date decline in the price of Brent crude oil has been offset by a 6% depreciation in USD/ZAR."

This week, focus turns to the US-China trade developments. The US, UK and China’s retail sales data for July will be released this week and will provide clues on how the global economy is likely to fare in the third quarter, Tsebe said.

Locally, June’s retail sales data will be released this week, it should reinforce last week’s mining and manufacturing data that showed second-quarter GDP is likely to increase by 2.4% q/q saar, Tsebe added.

Rand starts the day at R15.25/$ 

The rand appears to be testing the R15.30/$ mark, treasury partner at peregrine Treasury Solutions, Bianca Botes noted in a market update on Monday.

"All eyes still squarely on investor sentiment hinging on trade dynamics and global growth," she commented.

"It’s quiet on the data front today, with the Federal monthly budget statement being the only noteworthy event on the calendar.  

"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.

"Trump also made it clear that the US is in no way ready or willing to make a deal at this stage but that if talks continue it will be on an open basis," she said.

The general consensus is that the rand is oversold at its current level and a retracement is on the cards. "The only question, however, is whether the global geopolitical environment will allow for this correction," she added.