Markets WRAP: Rand closes at R14.01/$, with the day's range between R13.92 and R14.06

OVERVIEW: US equity futures fell while shares drifted in Europe and climbed in Asia as investors digested signs that America-China trade tensions are set to persist. Treasuries declined, the dollar steadied and gold fell. Telecommunications shares helped support the Stoxx Europe 600 Index, though the gauge was limited by a plunge in Renault SA following misconduct allegations against the carmaker’s leader.

Equities posted modest increases in Tokyo, Hong Kong, Shanghai and Taiwan. European bonds mostly edged lower, with Italian securities erasing earlier gains made when Deputy Premier Luigi Di Maio said his government is ready for dialogue with the European Commission over the country’s budget.

The pound reversed its advance as Theresa May appealed to business leaders to help deliver her Brexit deal and Gibraltar emerged as a fresh sticking point. Treasuries dropped across the yield curve. Trading activity may be thinned in the US this week because of the Thanksgiving holiday.

Investors are reassessing markets after several weeks of volatility amid enduring concern over trade conflicts and rising US interest rates that push up financing costs and threaten world growth. The Asia-Pacific Economic Cooperation failed to agree on a joint statement for the first time in its history, and US Vice President Mike Pence attacked China at a weekend summit, quashing optimism that relations would improve at Group-of-20 meetings starting next week.

Elsewhere, the Australian and New Zealand currencies slipped after Pence’s remarks. In commodities trading, oil futures languished below $57 a barrel in New York following the recent slump into a bear market. Bitcoin dropped further below $6,000, touching a one-year intraday low.

Andre Botha, Senior Currency Dealer at TreasuryONE says, “As we have stated before the rand is trapped in a range of R14.0000 to R14.5000, but within that range, there is quite a lot of scope for some Rand volatility.

"This was in evidence last week as the Rand bolted to the R14.50 level in early week trading only to close to the R14.00 level. However, the rand move was dominated by one thing, and that was movement in the US dollar. Early in the week, the US dollar traded at levels last seen in 2017 when the Euro fell on the back of the Brexit negotiations and Italy defying the EU with their budget that was not in line with EU regulations.

"The dollar moved the other way on Friday, as the Fed raised concerns over the global economic climate and whether growth will slow down in 2019. We have seen Gold rising on investors running scared after the Fed statements and that has also helped the rand.

"Looking at the week, all eyes will still be on the US dollar and the market will take their cues from any US dollar movement. We do have the small matter of the South African MPC meeting this week, and the market is split over [whether there will] be an increase in the interest rate following the close call at the previous meeting and where the South African market is currently finding itself. With the decision being a close call we expect some volatility come Thursday.”

Lukman Otunuga, a Research Analyst at FXTM said in a morning note to clients that SA's week ahead was expected to be "volatile" for the rand.

"The upcoming week is expected to be a volatile one for the rand with opportunities for fluctuations increased by the combination of tier-one economic data releases domestically, as well as global forces like Brexit ... impacting risk appetite and how investors behave towards the dollar. 

"On the domestic front, investors will be keeping a close eye on the upcoming inflation data and conclusion of the latest central bank monetary policy meeting this week. The risk of a change in interest rate policy at this time in South Africa is seen as a contained one with the outcome probably tipped towards monetary policy being left unchanged, however this consensus might change if there is a significant upside or downside surprise from the latest inflation readings.

"There is a reasonable view that interest rates could be revised lower to help the domestic economy at a time where the economy needs domestic support and the outlook is challenged by numerous external uncertainties, but the year-to-date weakness in the rand and the risks associated with higher inflationary pressures is something that can’t be under looked.  

"External uncertainties remain a driving factor behind why interest rates have been left unchanged in recent months. What has been encouraging for the rand over the past week is that it showed signs of resilience in light of the resumption of Brexit risks and the euro hitting its weakest level in over a year against the greenback, with both factors in the past seen as a risk for the rand due to its correlation to European assets.’’

Pound outlook most bearish since Brexit vote as May faces crisis

Investors are the most bearish on the pound since the UK voted to leave the European Union as markets brace for the possibility of a no-confidence vote on Prime Minister Theresa May.

The premium to buy put options on the currency relative to calls is the steepest since June 2016, with the Sunday Times reporting that seven leading Conservative lawmakers are preparing campaigns to oust her.

A confidence vote could come as soon as Tuesday, the newspaper said.The pound declined more than 1% last week after several of May’s ministers quit in disagreement over her Brexit divorce deal with the EU. The political turmoil has opened up a multitude of risks for sterling, including the prospect of new elections or even a second referendum.

Tokyo stocks open higher with improved sentiment

Tokyo stocks opened higher on Monday as investors refocused on sound corporate earnings helped by optimism about trade, but there were still lingering concerns about issues including Italian politics.

The benchmark Nikkei 225 index was up 0.17%, or 37.51 points, at 21 717.85 in early trade while the broader Topix index was up 0.11%, or 1.77 points, at 1 631.07.Investors in Tokyo appeared to take heart from hopeful comments on trade from US President Donald Trump last week "to buy shares in companies with brisk earnings", said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities.

However, worries over the Italian budget persisted, Nomaguchi added, noting "if Italy keeps refusing to accept the EU's proposal on the budget, Italian long-term rates could rise and destabilise the financial market".

Most Asian markets rise as investors weigh China-US trade row

Asian markets mostly rose on Monday but investors were keeping a close eye on the China-US trade row after Donald Trump's optimistic comments on a possible deal were offset by a war of words between his vice president and Xi Jinping.

The mood across the region was a little calmer at the start of the week, providing some much-needed support after the volatility of seven days ago, with oil stabilising and the Federal Reserve tempering fears about its plans for interest rate hikes.

US markets provided a positive lead after Trump said on Friday that Beijing had made overtures toward resolving their trade war, meaning he might hold off imposing another round of tariffs.