Trade war talk weighs on global risk appetite, resulting in weaker rand

The rand steadied at relatively weaker levels on Monday morning, kicking off what could be another interesting week for the markets.

The trade war rhetoric between the US and China was one of the key features appearing to drain appetite for risky assets, notably equities.

On Friday, the US followed through on its earlier promise to impose tariffs on imported Chinese goods to tune of $50bn, prompting retaliatory measures by China of the same proportions.

The US has also recently imposed tariffs on steel and aluminium imports from Canada, Mexico and the EU, accusing them of unfair trade.

Analysts have cautioned that a tit-for-tat trade war could slow down global trade. But the market’s response has been largely contained, suggesting that market participants adopted a wait-and-see approach while the trade spat played out.

Markets will also keep tabs on local inflation figures, which are due out on Wednesday. Trading Economics expects headline inflation to have accelerated to an annual pace of 4.9% in May from 4.5% in April.

The Reserve Bank will release its quarterly bulletin on Thursday, with the current-account figures for the first-quarter the key focus for the markets.

“We need to keep an eye on this to see how big the deficit is that SA needs to fund,” said Wichard Cilliers, director and head of currency dealing at TreasuryOne, in e-mailed note to clients.

He said SA would either need to attract foreign direct investment or attract better equity and bond inflows.

“Our bonds have been sold off aggressively over the past two months, but we feel it does offer a lot of value here. We, however, will need a change in risk appetite in the world market for the flows to start trickling back to emerging markets.” Foreigners were net sellers of local equities to the value of R4.7bn over the past week, according to the JSE’s weekly data.

They were net sellers of local bonds worth R1.8bn over the same period, bringing the net sales to just more than R23bn so far in 2018.

The recent bond outflows helped push up bond yields, which means a drop in the value of bond prices.

However, in early trade local bonds were steady, with the yield on the benchmark R186 bond fetching 9%, little changed from its last settlement on Friday.

At 10.06am, the rand was at R13.4767 to the dollar from R13.4223, R15.5959 to the euro from R15.5601 and R17.8295 to the pound from R17.7956. The euro was at $1.1572 from $1.11588.

Business Day

Source: businesslive.co.za