Markets WRAP: Rand closes at R14.07/$

The rand closed at R14.07 to the greenback on Tuesday afternoon.

The day's range was between R14.01 and R14.11.

TreasuryONE said earlier that the rand was likely to remain range bound for most of the day.

The stakes have risen for Netflix since the last time the video-streaming pioneer reported earnings. With more than four new entrants to the Internet TV gauntlet, investors will look to chief executive officer Reed Hastings during the conference call for reassurance.

Netflix is scheduled to release first-quarter results after markets close Tuesday, with Wall Street projecting subscriber additions of 1.61 million in the US and 7.33 million internationally, according to data compiled by Bloomberg.

That’s slightly higher than Netflix’s forecast of 1.6 million and 7.3 million, respectively. Shares of the streaming service provider rose as much as 2% in early trading after Deutsche Bank upgraded the stock to a buy from hold and boosted its price target to $400. Analyst Bryan Kraft touted the company’s decreasing reliance on licensed content and said it looks “more and more like a platform every day, rather than just an application.”

But Wall Street is braced for a softer forecast as phasing of the effective price hikes is expected to mostly weigh on second quarter subscriber additions. Other factors, such as a lighter content slate and competition from Disney’s “Avengers” film and HBO’s final season of “Game of Thrones,” are also expected to contribute to a tepid view.

While Netflix may have taken a hit from the forthcoming Disney+ platform, losing $8 billion in market value since last week, analysts still consider Netflix to be the streaming leader. Moreover, many of the yet-to-be-launched services are seen as a value add for the streaming industry. Netflix’s stock has risen more than 30% year to date despite expectations of a conservative second quarter. - Bloomberg

EOH jumps most on record on plans to sell non-core assets

EOH Holdings climbed the most on record as the South African technology firm announced plans to sell non-core businesses to generate about R1bn to quash its debts.The Johannesburg-based company will organise its operations into four units and will sell assets that don’t fit into the new structure, it said in a statement Tuesday.

OPEC gambles with success of production cuts as $80 oil looms

Grant Smith, Bloomberg

After managing to revive oil prices through production cutbacks, OPEC now risks squandering its victory again by letting crude surge too high.

In the first quarter, coordinated production curbs by the Organization of Petroleum Exporting Countries and its allies helped oil rally the most in almost a decade, restoring prices to over $70 a barrel.

Saudi Arabia, the group’s most powerful member, has made clear that it’s determined to keep supplies tight. That risks a repeat of 2018, when production cuts propelled oil to a four-year high, provoking a backlash from President Donald Trump and a hasty reversal by the kingdom.

“It appears that the producer group is over-tightening the market,” said Ed Morse, head of commodities research at Citigroup in New York. OPEC and its partners launched a new round of output cuts at the beginning of the year when it looked like booming US shale-oil production and fragile global demand growth would lead to a supply surplus.

But as the group implements the curbs, and as supplies are squeezed further by crises in Venezuela and Iran, there’s now a greater risk of a shortage.

If the group continues with its cutbacks, global oil inventories will contract by almost 1 million barrels a day in the third quarter, the steepest drop in nearly two years, data from the organisation shows.

However, the group won’t make a decision whether to extend until it meets in late June. The strain on markets could go even deeper. A conflict is flaring in Libya, output is plunging in Venezuela because of a spiraling economic crisis, and the US will soon decide whether to tighten sanctions on Iran’s oil exports.

"OPEC is one major shutdown - Libya, say - from a very damaging price surge that throws all the plans out the window,” said Derek Brower, a director at consultant RS Energy Group.

That could easily send crude prices to levels that prompt disapproval from the White House, the Saudis’ most important political ally.

“There’s no doubt that in a scenario where Brent crude heads to $80, President Trump will voice his concern,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.

Rand edges above R14:00/$

By Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solution

"The rand has started Tuesday off slightly weaker as major currencies rebounded somewhat following a long stretch of subdued and range-bound activity.   

"The markets are looking towards China and Europe with high hopes that economic data will indicate that the worst is over for the global economy.  Chinese FDI and Turkish retail sales data are due this morning, while we keep an eye on economic sentiment from the EU and production figures from the US this afternoon.  

"The rand seems to be heading to more sustainable levels, with a break above R14.06/$ indicating R14.20 as the new target."

TreasuryONE's Andre Botha said the rand is likely to continue with the same "lacklustre" narrative from yesterday.

By 09:51, the rand was trading at R14.02 to the greenback.

“The rand movement yesterday could only be described as lacklustre as the local unit briefly flirted with the R13.90 level before settling the day just above the R14.00 level.

"In a data and event absent day, the slightly weakening rand seems to suggest that the momentum of the last couple of weeks has gone out the window.

"It is quite possible that the rand is starting its weary trading before the election but we would need to see a definite move after an event related to the election to confirm this.

"Today we expect the same narrative to continue with the rand (range-bound trading) as the data calendar is empty as the market awaits data from China tomorrow with the Chinese GDP standing out from among the other releases.

"This is of particular importance with the US-China trade talks and the stature that China holds in the EM space."

Stocks drift in Asia on earnings; dollar ticks up

Andreea Papuc, Bloomberg

Stocks stalled near six-month highs in Asia Tuesday as investors weighed earnings in the US and the region. Treasuries steadied and the dollar edged higher.

Shares in China and Hong Kong outperformed, drifted in Tokyo and were little changed in Seoul. US and European futures rose.

Earlier, the S&P 500 Index slipped from a six-month high, halting a three-day advance, as earnings season kicked into high gear. Sentiment was hit after Goldman Sachs Group missed estimates for sales and trading revenue, while Citigroup also fell after its revenue matched expectations.

Treasury yields ticked lower after data showed China’s holdings rose for a third month.

The yen inched higher. With Chinese trade and lending data showing signs of improvement for the world’s second-biggest economy, investors are turning to the US earnings season to confirm the resilience of corporate America in the face of numerous challenges to growth. Results from Bank of America are due Tuesday.

Central banks remain in focus, with Chicago Fed President Charles Evans, who currently sees rates on hold until the fall of 2020, saying that the Federal Reserve may need to cut rates if inflation falls.

“We are going into this earnings season with the most pessimistic expectations and earning revisions ratios since 2016,” Isabelle Mateos y Lago, chief multi-asset strategist at BlackRock, said on Bloomberg TV. “Obviously the markets are not expecting too much and a lot of good news are already priced in, so it makes sense for the market to take a pause.”

Elsewhere, Chinese stocks outperformed as sentiment toward banks improved. West Texas oil drifted after the longest run of weekly gains in three years as a report showed increased US oil-rig activity.