Markets WRAP: Rand closes at R14.44/$

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19 Mar 2019

The rand closed at R14.44 to the greenback on Tuesday afternoon. 

The day's range was between R14.33 to R14.48.

TreasuryONE said earlier that the rand was likely to feel the impact of load shedding the longer it persists. At a briefing on Tuesday, Public Enterprises Minister Pravin Gordhan said he could not yet say when rotational load shedding would be suspended. Gordhan said he would only have a clearer answer in about ten to 14 days' time.

19 Mar 2019

Nissan plans to more than double Mideast, Central Asia factories

Nissan plans to more than double the number of factories it has in the Middle East and central Asia by 2022, as the Japanese automaker seeks to secure the top market share in some of the region’s most populous and wealthiest nations.

The company currently has three factories in India, Egypt and South Africa. It wants to add facilities in countries including Pakistan and Algeria, Peyman Kargar, chairman of Nissan in Africa, the Middle East and India, said in an interview.

Others would come later, he said.

“We want to more than double our industrial footprint in the Middle East, Africa and India by 2022,” said Peyman.

As Nissan is planning to boost production in the region, it’s paring back in the U.K. The next version of its X-Trail sport utility vehicle will be made in Japan instead of Sunderland, England, and it’ll halt production of the Infiniti Q30 sedan and QX30 crossover at that plant as it withdraws the premium brand from Western Europe.

While the region is one of the smallest markets for global car makers, Nissan produced 6 percent of its vehicles globally in India in 2016, according to the most-recent data compiled by Bloomberg.

The company is also aiming to leapfrog competitors in the Gulf Cooperation Council and Egypt by 2022 by increasing its market share to more than 20 percent by 2022, from 16 percent and 15 percent, Peyman said. The GCC is home to six oil-rich countries including Saudi Arabia.

Egypt, with a population of around 100 million, is also considered a strategic market for Nissan, with plans to increase output from its factory there by 6,000 vehicles to 28,000 in the year that starts April 1.

But while Nissan’s outlook for Egypt is optimistic, Peyman said the government’s decision drop customs duties on cars imported from the European Union is a challenge in the short and medium term. The company has had “very positive” discussions with authorities government regarding this issue, he said.“We asked them to support the local industry to be able to compete, to not put us in a less competitive situation.” - Bloomberg

19 Mar 2019

Elections loom as threat to uneasy calm across emerging markets 

A spate of elections is about to inject a bit of volatility into emerging markets just as this year’s rally starts to unsettle the bulls.

Thailand is preparing for its first general election since a military coup in 2014. Indonesia’s presidential poll follows next month, with incumbent Joko Widodo seen holding a lead over rival Prabowo Subianto.

And by then, India, the world’s biggest democracy, will have begun six weeks of voting that will decide whether Prime Minister Narendra Modi wins a second term, with final results due May 23.

Asia will be at the epicenter of the election story in coming months, while votes in South Africa and Argentina are likely to provide added risks for investors at a time when implied currency swings are at their lowest in a year and banks including Morgan Stanley and HSBC Holdings are urging caution.

A Bank of America Merrill Lynch survey published last month labeled emerging markets the world’s most-crowded trade, with indexes of sovereign bonds and currencies registering year-to-date gains and equities on course for their best quarter in two years.

“With the way emerging markets have been moving this year, investors need to be more selective based on a variety of factors including economic fundamentals and political risks,” Takeshi Yokouchi, a senior fund manager at Daiwa SB Investments in Tokyo, which manages the equivalent of $54bn, said in a phone interview.

“The expectation is for the ruling party to win in major elections such as South Africa and Indonesia, with Modi’s party also extending support recently in India, but this doesn’t mean investors can remain care-free about these elections.” - Bloomberg

19 Mar 2019

Fred Phaswana, Joint Chair of Mondi Limited and Mondi plc, has decided to retire, Mondi informed the JSE and London Stock Exchange on Tuesday.

"Fred is fully supportive of, and committed to, ensuring the smooth implementation of the prosed simplification of the Mondi Group's corporate structure announced in November 2018," the group said in a statement. "He will stand for re-election at the annual general meetings of Mondi Limited and Mondi plc in May 2019 and, subject to his re-election by shareholders, will remain in office until completion of the proposed simplification... after which Fred intends to retire."

The simplification is expected to be completed in the second half of 2019, and further details will be announced shortly, Mondi said. 

David Williams has also elected to retire in 2020, having served for more than nine years as Joint Chair and almost 12 years on the boards, the group added. 

The search will begin shortly for a new chair, with details to be announced.

19 Mar 2019

Palladium Tops $1 600 as metal sets new highs on supply shortage

Palladium topped $1 600 an ounce for the first time, and there’s little sign of the rally slowing as global supply tightens.

The price of the metal - mainly used in autocatalysts in gasoline vehicles -- has almost doubled from a recent low in August. Demand has remained robust as manufacturers scramble to get hold of palladium to meet more stringent emissions controls, particularly in China, even as auto sales in key markets slow.

With the palladium market expected to be in deficit for an eighth year, speculators have piled back in, and a robust borrowing market for the metal prompted investors to pull supplies from exchange-traded funds and lease them out. Fiat Chrysler Automobiles NV’s recent recall of almost 863,000 vehicles that violate U.S. standards could spur even more demand.

The metal’s rally is even stirring debate about whether automakers can make the switch to cheaper platinum to help control their costs.“We remain bullish on palladium since the physical palladium market remains tight and it will take years to substitute,” analysts at Citigroup Inc. wrote in a March 19 report.

“However, at these higher prices we are acknowledging the increase in downside risks relating to potential substitution headlines.”

Palladium climbed as much as 1.4 percent to $1,601.52 in London, and is up 27 percent this year. Bank of America Merrill Lynch earlier this month raised its average forecast for 2019 to $1,800, suggesting that prices could surge as high as $2,000.

19 Mar 2019

Few reasons not to like emerging markets even as Rupee hits wall

The Indian rupee’s eye-watering rally had to come to an end sooner or later, but today’s 0.4% drop was a somewhat anomalous event in emerging markets, as most of its peers continued to benefit from the dollar’s pre-Fed weakness.

However, it may be a sign of things to come - for a host of reasons.

First, the central bank has been signaling lately it’s not entirely happy with the rupee’s strength. Second, oil is headed back up toward $70 a barrel.

Third, it’s unlikely the recent surge of flows into Indian bonds can be sustained given the country’s limits on foreign holdings. And, if you like technical indicators, the rupee’s 30-day relative strength index has been signaling a pullback for the past five days. - Bloomberg

19 Mar 2019

Bianca Botes from Peregrine Treasury Solutions says despite the softer dollar, the rand is struggling to gain ground against major currencies due to load shedding which has placed the currency under pressure.

By 11:18, the rand was trading at R14.35 to the greenback.

"Global markets are gearing up for yet another round of dovish Fed comments tomorrow, as the US central bank is expected to keep rates on hold.

"The rand has remained largely flat, trading in a tight range between R14.38 and R14.50, where it is expected to remain," she said.

19 Mar 2019

The rand seems to be happy in the R14.30 to R14.50 range that it's currently in, says TreasuryONE's Senior Dealer, Andre Botha.

"The steadiness in the rand is due to the placid trading of the US dollar and an overall sense of calm in the market. This gives one the sense that there could be some movement after the US Fed press conference tomorrow, and the market is just sitting on their hands.

"The possibility that the Fed will stay dovish and stop the drain of US dollar liquidity could mean that EM will be in the pound seats. However, the rand faces headwinds in the form of the current spate of load-shedding, which will start to weigh more heavily on the rand the longer it continues.

"The longer it continues the more of an effect it will have on the South African economy and will irk rating agencies which will be rand negative in the long run.

"The headwinds could subdue the gain that could come from a dovish Fed.”

19 Mar 2019

Stocks drift ahead of Fed; dollar steadies

Andreea Papuc, Bloomberg

Equities in Asia drifted Tuesday as traders awaited central bank meetings amid expectations of dovish signals to monetary policy.

The dollar steadied after recent declines, while the yen edged higher. Stocks posted modest losses in Japan, China and Hong Kong and were little changed in Australia.

US equity futures ticked higher after the S&P 500 Index climbed to a five-month high Monday. European equity futures were mixed.

The pound pared losses that came after the speaker of Parliament blocked another vote on Prime Minister Theresa May’s current Brexit plan.

The yield on 10-year Treasuries nudged lower to just under 2.6%. Australia’s three-year bond yield slid below the 1.5% policy rate for the first time since September 2016.

A dovish tilt from the world’s central banks has helped global equities rally to the highest since October. Expectations are that the Fed will point the way to just one rate hike in 2019 when it meets Wednesday.

The Bank of England also meets this week and is seen holding rates steady.

“We are on higher alert because of the potential for a sentiment swing to do very quick damage in the markets,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “The just-right conditions are unlikely to last very long. It means whichever way growth moves, up or down, we could see negative reactions from risk assets, and particularly share markets.”

19 Mar 2019

Tencent is said to target 10% of managers for job cuts, demotion

Tencent is putting about 10% of its managers on notice, as China’s largest gaming and social media company shakes up its workforce amid cooling growth and intensified competition, according to people familiar with the matter.

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