The rand hammered to lowest level since 2016

The rand plunged by almost 8% against the dollar on Monday, almost touching R17/$, as investors fled riskier assets, with tumbling oil prices adding to nervousness spurred by the spreading coronavirus.

While global sentiment was the largest factor in the rand’s performance - with the currency seen as a proxy for its emerging-market peers - local factors including renewed rolling power cuts by Eskom and a downbeat assessment by Moody’s Investors Service of South African growth ahead of its ratings review later this month contributed to the selling pressure.

Downbeat Moody's, virus fears and drop in commodity prices sink rand

Eskom warned that its maintenance plan must be supported by the government or South Africa can expect regular blackouts from power cuts of 8,000 megawatts by mid-2021, a move that would cripple the economy. The power utility said it will implement rolling blackouts from 9 a.m. on Monday, which may continue until Thursday. Moody’s said on Friday it had trimmed its 2020 gross domestic product growth forecast for Africa’s most industrialised economy to 0.4% from 0.7%.

The rand slid for a third day, falling as much as 7.7%. It pared the losses to be 3.2% weaker at R16.1884 per dollar in Johannesburg, the lowest since February 2016 on a closing basis. The rand slumped to R16.97 earlier in the session.

The yield on rand-denominated government bonds due December 2026 jumped 19 basis points to 8.19%, while generic 10-year notes were little changed at 9.04%. Non-residents were net sellers of R2.7 billion of South African bonds on Friday, according to figures from JSE.

Global market mayhem

Oil prices crashed, equities plunged and currencies and bonds saw wild moves as panic appeared to grip financial markets in the aftermath of a full-blown price war in crude.Futures on the S&P 500 Index fell about 5%, triggering trading curbs. Japanese stocks sank 6% and futures on the U.K.’s FTSE 100 Index tumbled over 7%. Exchange rates including the yen and Australian dollar saw sudden moves that showed traders struggling to establish where new trading ranges might be. Sovereign bond yields plumbed fresh lows, on mammoth moves including a tumble of more than a quarter percentage point for 10-year U.S. yields.

Among the tumultuous moves to kick off the week:

  • For the first time, the 10-year Treasury yield fell below 0.5% and the 30-year yield dropped under 1%
  • Crude plummeted more than 30% at one point, sliding the most since the Gulf War in 1991
  • Norway’s krone slid to its weakest against the dollar since the 1980s.
  • Mexico’s peso fell more than 7%, to the weakest since the aftermath of border-wall advocate President Donald Trump taking office
  • Australian and New Zealand 10-year government bond yields hit fresh record lows
  • The yen climbed to its strongest since 2016S&P 500 futures, 10-year yields fall amid oil-price crash

The oil-price crash, if sustained, would upend politics around the world, exacerbate strains in U.S. high-yield credit and complicate the work of central bankers as they try to model the impact of the virus on economies. It would otherwise prove a boon to consumers, but the coronavirus is increasingly keeping them at home. Italy over the weekend effectively put its industrial heartland in the north of the country on lockdown.

Economists are having to rewrite their forecasts before the ink dries on the previous set. Morgan Stanley is among those seeing a rising risk of a technical recession across major economies, with the second quarter set to see continuing disruption thanks to the epidemic. Central bank stimulus may help eventually, though the outbreak will need to be contained first.

“You just don’t know which way things are going to go, it makes it very hard to price anything right now,” said Sarah Hunter, chief economist for BIS Oxford Economics, on Bloomberg TV. “We’re seeing that in the market with the wild oscillations that are coming through.”

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