Rand gains on trade deal hopes; stocks weak

South Africa’s rand rose on Monday, holding onto its post-budget gains, after US President Donald Trump extended a deadline for China and the United States to reach a trade agreement.

Stocks weakened as rand-hedges weighed on the market.

At 1510 GMT, the rand was 1.32% stronger at R13.81 per dollar after closing at R14.00 on Friday in New York.

Trump’s announcement was the clearest sign yet that China and the United States were near an agreement to end a trade war that has slowed global growth and disrupted markets.

“The suggestion from President Trump that he is planning for a summit for President Xi and himself will also raise investor excitement that a resolution to this long-standing trade conflict is nearing a conclusion,” Jameel Ahmad, global head of currency strategy & market research at FXTM, said in a note.

“What this should eventually mean for investors is that appetite to risk should gradually improve, meaning stronger momentum in global stock markets and improved demand for emerging market currencies.”

After an initial slip following last Wednesday’s budget, where Finance Minister Tito Mboweni announced a R69 billion ($5 billion) bailout for ailing utility Eskom and a slower growth forecast, the rand regained ground as traders saw some positives in the speech.

Moody’s, the last of the major credit agencies to rate South Africa as investment grade, said the budget showed South Africa’s limited options in a challenging economy, reflecting sympathy for a situation Mboweni inherited when he took over the Treasury in October.

Bonds also gained, with the yield on the benchmark 10-year government issue down 3 basis points to 8.695%.

On the stock market, the benchmark Top 40 index and the All-Share index slipped as investors sold shares in local companies that earn most of their revenues in hard currency, known as rand hedge shares, as the rand strengthened.

The All-Share dropped 0.2% to 55,878 points; the Top 40 fell 0.2% as well, to 49,638 points. Anglo American fell 1.53% to R367.97 and Glencore was down 1.47% to R55.80. MediClinic weakened 0.81% to R58.52.