Rand weaker as risk sentiment sours

The rand weakened early on Thursday as risk sentiment globally continued to be shaken by the trade stand-off between China and the United States and the possibility of recession.

At 0645 GMT the rand was 0.3% weaker at 15.46 per dollar, a touch weaker than its overnight close after sliding through 15.20 level on Wednesday to record a third consecutive session of losses as the bear case gathered steam.

National Treasury told lawmakers on Wednesday that government may be forced to inject more money into state power firm Eskom by the end of March.

The Treasury has already earmarked R26 billion to Eskom in the current financial year. That is on top of a R23 billion a year bailout for the next three years.

Read: Eskom could sell some coal-powered plants to raise R450bn

Eskom poses a huge risk to economic growth, which contracted 3.2% in the first quarter after power plant outages pummelled activity, and could also drag the sovereign credit rating into junk as bailouts mount ahead of Moody’s review in November.

The ongoing trade dispute between Beijing and Washington, which remains far from resolved, is set to hurt South Africa’s exports and foreign currency earnings, putting further pressure on the rand.

“The fragility of sentiment is evident in currency market volatility as investors remain on edge amidst slowing economic growth and ongoing trade tension,” said Bianca Botes, an analysts at Peregrine Treasury Solutions.

“Poor liquidity in overnight trade saw the rand move a leg weaker, breaking out of the previous range,” Botes said, adding that a slip to the key 15.50/$ mark was in sight.

Bonds also weakened, with the yield on the benchmark 10-year issue adding 4 basis points to 8.235%

In equities, food and clothes retailer Woolworths posted a 2.1% drop in annual earnings, saying it had written down the value of its Australian upmarket department store chain David Jones.

Fellow retailer Massmart showed a R832.4 million net loss in the first half of 2019 compared with a profit of 190 million a year ago, citing softer-than-expected sales, higher expenses and foreign exchange losses.