rand at near 7-month low on US-China trade war, stocks dip

South Africa‘s rand fell to its weakest in nearly 7 months on Tuesday and government bonds weakened sharply as US President Donald Trump threatened new tariffs in an escalating tit-for-tat trade war with China, hitting sentiment in emerging markets.

The risk-off sentiment also hit stocks, with banking shares leading the fall.

The rand led the losses in emerging market currencies as sentiment was also weighed by concerns over the domestic economy after a string of poor economic data and power outages following protests over wages at national electricity provider Eskom.

At 15:00 GMT, the rand was 0.9% weaker at 13.7700, slightly better than the 7-month low of 13.9150 touched earlier in the session.

The sharp global risk-off came after Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods and Beijing warned it would retaliate.

“The rand is likely to remain volatile for the rest of second quarter 2018 and third quarter as it remains at risk from heavy portfolio outflows,” Investec chief economist Annabel Bishop said.

“Added to this, is that South Africa is already disappointing investors with heavily indebted Eskom’s threatened load shedding and wage demands,” Bishop said.

Inflation stood at 4.5% in April and the May figure is due on Wednesday.

Africa‘s most industrialised economy suffered its worst quarterly GDP contraction in nine years in the first quarter, and last week embattled Eskom began the first country-wide controlled power outages since 2015.

In fixed income, the yield for the benchmark government bond due in 2026 was jumped 9 basis points to 9.195, reflecting weaker bond prices.

On the bourse, the benchmark Top-40 index fell 1.93% to 50 020 points while the All-Share index dropped 1.72% to 56 253 points.

The bank sector down 2.35% was among the biggest losers with Standard Bank fell 2.19% to R186 00 and FirstRand dropped 3.48% to R56.88.

“People weren’t liking emerging markets, the dollar is so strong and as soon as there is uncertainty people move into cash,” said Cratos Capital equities trader Greg Davies

On the other end of the stock market, South African construction firm Aveng rose 12.50% to R18 after rival Murray & Roberts voted on Tuesday for the company to look into a potential tie up.