Markets WRAP: Rand closes at R14.23/$

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16 May 2019

The rand closed at R14.23 to the greenback on Thursday afternoon.

The day's range was between R14.13 and R14.26.

TreasuryONE said earlier that the news that US President Donald Trump would delay auto tariffs boosted markets. The rand firmed to R14.17 levels at the time but slipped back to R14.25 this morning.

16 May 2019

Stocks advance as investors beat back trade fear

Todd White, Bloomberg

US equity futures rose on Thursday and Treasuries declined as investor anxiety at the escalating trade dispute between the world’s biggest economies showed signs of easing.

The dollar was slightly stronger as data showed new-home construction in America rose for a second month.

Contracts on all three of the main benchmarks had dropped earlier in the wake of President Donald Trump’s moved to curb Huawei Technologies’ access to the US market.

But alongside the Stoxx Europe 600 Index they recovered through the European morning. Walmart rose in early trading after the company reported its best first quarter in nine years, though it warned that higher import duties may boost consumer prices.

Equities fell earlier in Tokyo and slumped in Seoul, while gauges in Hong Kong and China climbed.

In South Africa, the JSE All Share index was up 0.6% at 15:15. 

The market gyrations speak to the elevated level of anxiety among investors, as trade tensions between major economies fester and fears for growth drag on.

Equities have oscillated this week as traders scramble to make sense of a slew of headlines. In the latest developments, US President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling their equipment in the US, while he’s set to give the EU and Japan a deadline to agree to “limit or restrict” automobile exports to America.

Amid the confusing landscape, traders have increased bets on the Federal Reserve cutting borrowing costs later this year. Fed Bank of Richmond President Thomas Barkin said while he favors keeping interest rates on hold for now, he worries that business confidence is fragile.

"Depending on how long this standoff with China lasts, that impacts growth for longer and might force the Fed’s hand," Esty Dwek, senior investment strategist at Natixis Investment Managers, told Bloomberg TV in Singapore. “I wouldn’t expect any big change in the short term, but the possibility of a cut much later in the year has risen.”

Elsewhere, the pound dropped for a ninth day versus the euro - the longest losing streak since 2000 - as UK Prime Minister Theresa May faced a new threat to oust her. West Texas oil futures rose for a third day.

*Additional reporting by Fin24

16 May 2019

Oil climbs on falling US fuel stockpiles and Gulf tension

Sharon Cho and Grant Smith, Bloomberg

Oil climbed for a third day - the longest run of gains in three weeks - as falling US gasoline stockpiles supported the demand outlook and simmering tensions in the Middle East kept investors on edge.

Futures in New York rose as much as 1.1% after adding 1.6% over the previous two sessions. American gasoline inventories dropped by 1.12 million barrels last week, more than three times as much as forecast, official data showed Wednesday.

In the Persian Gulf, Saudi Arabia restarted its main cross-country oil pipeline after a drone attack by Iran-backed rebels, while the US ordered all non-emergency staff to leave Iraq due to an “increased threat stream.”

The pipeline incident, and a recent attack on oil tankers, have highlighted the vulnerability of energy infrastructure to a major conflict in the Middle East as relations between the US and Iran deteriorate.

Yet Washington and Beijing’s intensifying trade war has kept a lid on price gains, while a meeting of the Organization for Petroleum Exporting Countries and its allies in Jeddah this weekend may provide clues on whether output cuts will be extended.

"The growing tensions between the US and Iran now appear to be boosting oil prices after all," said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

West Texas Intermediate crude for June delivery increased 43 cents, or 0.7%, to $62.45 a barrel on the New York Mercantile Exchange at 10:45 London time.

It’s headed for the highest close in more than two weeks after finishing up 0.4% on Wednesday. Brent for July settlement rose 36 cents, or 0.5%, to $72.13 a barrel on the London-based ICE Futures Europe exchange after advancing 0.7% on Wednesday.

The global crude benchmark traded at a $9.47 premium to WTI, near the widest gap since February.

While American gasoline inventories fell last week, nationwide crude stockpiles increased by more than 5.4 million barrels to 472 million barrels, according to Energy Information Administration data.

Inventories at the storage hub of Cushing rose for a fourth week. The tension in the Middle East has risen this month after the White House moved to try and squeeze Iranian oil exports to zero.

On Thursday, Saudi Arabia accused Iran of ordering the drone attacks by Yemen’s Houthi rebels, while the kingdom’s foreign minister said Houthis were an “indivisible part” of Iran’s Revolutionary Guard.

The US embassy in Baghdad said Wednesday that most employees there and at the consulate in Erbil, in Iraq’s majority-Kurdish region, will leave.

Meanwhile, the Iraqi Oil Ministry denied a report that Exxon employees were being pulled out of the country.

16 May 2019

TreasuryONE's Andre Botha said that the rand remains volatile despite trading in a narrow band.

At 10:11, the rand was changing hands at R14.20 to the greenback.

"With the uncertainty surrounding the US-China trade deal, markets are waiting on any headline and reacting to it. That was in evidence yesterday when President Donald Trump announced that the US will not impose auto tariffs for six months.

"By delaying the tariffs on autos Trump has averted ruffling the EU's feathers, with imposing tariffs on EU auto exports and calming markets regarding the US-China trade deal and global growth in general. 

"We have seen risk trundling back into the markets with equity markets all ending in the green clawing back some of the losses it has suffered over the past few days. However, with the flip flop nature of the recent trade talks, it would be of little surprise if the market is taking a cautious approach until a trade deal has been agreed upon. 

"In the commodity space, we have seen that gold has weakened slightly on the back of Trump's comments with the risk-averse nature of the markets subsiding a little. Oil is trading above the $70 level per barrel as various global supply threats have rocked the market. Tensions in the oil market are evident everywhere from the Persian Gulf to Venezuela. 

"Locally, the rand seems happy to trade in the mid R14.20's with every break below R14.20 being swiftly arrested as well as any move close to the R14.30 level. It seems that the rand is waiting for a catalyst to give it some direction, with the US-China and South African Cabinet announcement being the two major events in the immediate future that could give direction to the rand.

"We expect the market to be cautious and we could see the rand still in narrow trading ranges while the status quo holds.”

16 May 2019

Stocks under pressure as trade tensions fester

Adam Haigh, Bloomberg

US equity futures declined and the yen edged up as Sino-American tensions continued to flare, leaving Asian equities volatile.

Stocks fell in Tokyo and Seoul along with S&P 500 Index futures after President Donald Trump moved to curb Huawei’s access to the U.S. market and American suppliers.

Indexes in Hong Kong and China were modestly higher. Australian government bond yields plumbed fresh all-time lows and the Aussie fell as the unemployment rate unexpectedly rose, though the moves eased.

Treasuries held steady after the two-year yield touched the lowest level since February 2018. Ten-year yields were at 2.37%. Oil rose above $62 in New York.

On Wall Street Wednesday, US equities closed higher as Bloomberg reported Trump would postpone by up to six months a decision on car tariffs that was due by Saturday.

Anxiety remains after unexpectedly weak US and Chinese economic numbers Wednesday heightened worries the trade war could weigh on a global economy that’s already slowing.

The actions on Huawei risk aggravating Beijing as the president seeks to pressure China’s leaders into agreeing to a wide-ranging trade deal with the US.

In the latest development, Trump signed an executive order Wednesday that could restrict Chinese telecommunication firms Huawei and ZTE from selling their equipment in the US, ratcheting up the battle for control over new 5G technology networks.

Rate-Cut Bets

Meanwhile, traders are increasing bets on the Federal Reserve cutting borrowing costs later this year.

Federal Reserve Bank of Richmond President Thomas Barkin said while he favours keeping interest rates on hold for now, he worries that business confidence is fragile amid slowing global growth and trade disputes.

“Depending on how long this standoff with China lasts, that impacts growth for longer and might force the Fed’s hand,” Esty Dwek, senior investment strategist at Natixis Investment Managers, told Bloomberg TV in Singapore. “I wouldn’t expect any big change in the short term, but the possibility of a cut much later in the year has risen.”

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