April 06, 2018
Trade War Tit for Tat
What we know
The news-flow this week was fairly limited, be-fitting of the Easter holiday period.
Locally there was not much market-moving news, with many market participants (and politicians) taking some time off during the school holidays. The news of the passing of both Winnie Mandela and Pam Golding, two well-know and widely admired figures in the country, was greeted with sadness and is being mourned by many.
On the economic front the only local data was the ABSA Manufacturing PMI (worse than expected) and the Standard Bank PMI (in-line). Similarly there was not much data out globally, although the market will look closely at tomorrow’s US employment data and non-farm pay-roll release.
The above was really overshadowed by the continuing talks of a trade-war between the US and China. Two weeks ago the market was pricing in concerns around this, last week the suggestion was that tensions were easing and this week the rhetoric is negative once again. The shifts in mood and risk-appetite were certainly reflected in global markets, with some big declines in major equity indices. Its unclear how the battle over tariffs will pan out in the end, but for now the market does hope that a more compromising tone from both parties will be forthcoming.
Such uncertainty naturally feeds through to riskier assets, including the ZAR and, in the absence of other news and economic releases, the local currency found itself on the back-foot for the most part, losing about 1% during the week.
What others are saying
02 April 2018
Bloomberg – Gold is heading to US$1,400 if trade war breaks out, according to Sprott
“Gold will surge to the highest level in five years if a global trade war breaks out”, according to Rick Rule, chief executive officer of Sprott US Holdings Inc., who’s been involved in the market for four decades. “Bullion could top $1,400 an ounce in 2018 as escalating trade tensions drive investors to havens and the three-decade bull market in bonds nears an end.”
03 April 2018
Fin 24 – Rand to remain vulnerable to global economic events this week
“The rand is still looking to start recouping some of its losses following the South African Reserve Bank announcement that they think the rand is overvalued. Given the global and SARB sentiment, it seems unlikely that the rand will push significantly lower in the short term and with the SA calendar looking a little empty this week, the rand will be left to global factors to determine its direction.”
Reuters – Global Economy -Trade conflict fears to keep markets on edge for weeks
“Whether such concerns remain a driving force for asset prices in the coming days depends largely on decisions, tweets and formal announcements from Washington and Beijing, but it seems certain that the uncertainty has at least another month to run.” By Philip Blenkinsop
European Prices, U.S. Jobs
“We see further declines of the rate below the level the Fed thinks is the natural rate of unemployment. Over time, you would expect it would exert upward pressure on wages, which admittedly we have not really seen,” Commerzbank’s Bernd Weidensteiner.
04 April 2018
Daily Maverick – China plans to hit US soybeans, planes as trade war looms
“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US,” Trump tweeted. “We cannot let this continue!”
Business Tech – Trump’s trade war could push the rand above R12 to the dollar
“Concern that US President Donald Trump’s measures will trigger a trade war may hamper global growth and weaken demand for oil, according to Nedbank technical analyst… Oil leads the rand. 60% of the movement in the rand can be explained by changes in the oil price since 1990.”
05 April 2018
ETM Analytics – Morning Insight
“The medium-term outlook is still bullish the ZAR going by technicals, sentiment and quantitative indicators, but near-term considerations are still more defensive given offshore backdrop. Trading off a long USD base is the preferred bias as the market faces down more US-China trade ructions and coming US data risks.”
RMB Global Markets Daily Report – “It’s only polite to reciprocate”
“… we expect bonds to continue trading with a slightly offered tone as profit-taking and renewable hedging continues…With non-farm payrolls released tomorrow, we can expect muted trading today as bonds consolidate after yesterday’s move.”
What we think
Global growth prospects and investor sentiment, in conjunction with local data, are likely to be key determinants of the Rand’s fortunes in the coming months.
This was very much in the fore over the past few days as global risk-off took hold, with the result that the ZAR appears to be back in the 11.80 – 12.03 range we saw for much of March. On balance, we still believe that a re-test of the 12.03 should be on the cards in the coming days, although again this will be largely dependent on global trends.
Short-terms moves will continue to be unpredictable and it’s hard to have too much conviction on current calls in what could very well be a period of fairly range-bound trade, although a slight negative bias remains in our opinion.
Have a great weekend!