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Rand ekes out gains on short-covering in advance of budget speech

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South Africa’s rand inched firmer in the beginning Thursday, helped by a few investors taking profits within the dollar’s recent rally and short covering triggered via the currency approaching technical support levels.

At 0630 GMT the rand was 0.1% firmer at 13.56 per dollar as compared with an overnight close of 13.57 in New York.

A combination of a firmer dollar, higher-than-expected inflation print and negative sentiment spurred by recent cabinet changes had pushed the rand for the weakest in nearly a week towards near future tech support about the 13.60 mark.

But when using the dollar in a two-week high, traders bearish around the local currency and betting on further weakness took the ability to “pick the dip” which includes a opinion of selling again with the next support level at 13.85.

No data due within the session, so traders sit up for treasury’s medium-term budget on October 25.

A Reuters poll on Thursday expects Finance Minister Malusi Gigaba to announce a revenue shortfall of R40 billion ($3.0 billion) on account of poor tax receipts, likely pushing the cost deficit to 3.9% of GDP from three.4% estimate.

Read:?SA’s poor tax revenues to delay fiscal consolidation

Stocks were set to spread out flat at 0700 GMT, with all the JSE securities exchange’s Top-40 futures index down 0.05% .

In fixed income, the yield to the benchmark government bond due in 2026 was up 3.5 basis points at 8.805%.

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Markets

Rand’s Ramaphosa rally pauses in advance of Sona

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The rand surrendered some gains on Friday but remained near its three-year best in advance of Cyril Ramaphosa’s maiden state of the nation address after he was sworn in as the country’s president.

Stocks fell on Friday amid profit-taking right after the main index hit a very than three year rich in the prior session.

At 1515 GMT the rand was 0.24% weaker at 11.63 per dollar, by investors taking profits once the currency hit 11.56 previously from the session, its firmest since February 2015.

Other South African assets continued to rally, with bond yields over the benchmark at their lowest since December 2015, while five-year credit default swaps (CDS) fell 3 basis points (bps) from Thursday’s close.

Analysts have identified the impact since the “Ramaphosa rally” to refer to the buoyant market mood since was elected ANC leader in December.

On Wednesday Jacob Zuma resigned as president after of weeks of pressure, ending a nine-year tenure punctuated by scandals, stagnant economic growth and policy uncertainty.

“The final steps happened immediately. Africa has already got a new president. At the moment the FX sector is clearly relieved that Jacob Zuma went,” said analyst at German-based Commerzbank Ulrich Leuchtmann inside a note.

A former union leader, Ramaphosa has promised to cope with corruption and woo foreign investors. He will deliver a monitored speech at 1700 GMT.

Analysts said the rand could push past pivotal technical milestones in coming weeks, with all the annual budget speech due a few weeks an essential fixture on investors’ radar.

“It\’s very feasible that the dollar will weaken to below 11 contrary to the rand at last since December 2014 within the coming weeks,” said head of currency strategy at FXTM Jameel Ahmad.

On the bourse, the benchmark Top 40 Index fell 0.86% to 52 111 points as you move the All Share Index lowered 0.69% to 59 122 points.

The banking sector, considered the barometer of both economic and political sentiment, fell 1.1% to steer the bourse lower on Friday after coming off lifetime highs in the previous session as investors took profits from over bought shares.

“There would be profit taking going into this marketplace you can observe it especially over the banking sector. Banking institutions are down between 0.5 and 1%,” said BP Berstein portfolio manager Francesco Sturino

Capitec weakened 1.09% to R820.94 and FirstRand dropped 2.22% to R3.68.?

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Gigaba says country must ride positive market sentiment

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South Africa will keep to ride a wave of positive market sentiment following election of Cyril Ramaphosa when the new president nevertheless it might not be straightforward to restore investment credit ratings ., finance minister Malusi Gigaba told Reuters on Friday.

Gigaba stated that across the medium term, Africa’s most industrialised economy would be working “very hard” recover its investment grade and could beat growth forecasts by way of the International Monetary Fund for 2018.?

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Pitting lira against rand had been a vogue trade that went badly

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The idea was simple: Short the rand about the lira.?

It would have been a trade that removed during the early to mid-2017 as South Africa\’s prospects dimmed and Turkey\’s looked just like these people were improving. Bank of the usa Corporation and JPMorgan Chase & Co were one of several Wall Street banks that recommended it recommended to their clients.

And for a while, it worked, especially after former South African President Jacob Zuma fired Pravin Gordhan, his much-respected finance minister, in March. Until, that could be, a turnaround in South African politics — triggered by Cyril Ramaphosa\’s election as head of the ruling African National Congress late in 2009 — sent the rand soaring, and concerns over Turkey\’s widening current-account deficit and worsening international relations pushed the lira the opposite way.

\”A wide range of investors weren\’t convinced Ramaphosa would win, together with lira were being beaten up\” in late 2016, said Kevin Daly, a money manager working in with Aberdeen Standard Investments, which produced a small loss for the trade. \”So it looked OK. Clearly, it wasn\’t a high quality one finally.\”

Daly doesn\’t expect the trade in becoming enticing again anytime soon because investors reading Africa via a \”different lens\” after Ramaphosa replaced Zuma as president on Thursday. Turkey, he was quoted saying, still looks vulnerable.

\”We always expect a divergence relating to the lira additionally, the rand, with all the latter being favoured due to the positive reform narrative, dis-inflationary pressures, and prospects for further portfolio inflows,\” said Phoenix Kalen, a director of emerging-markets strategy at Societe Generale in London. Turkey\’s diplomatic tensions, inflation higher than 10% and \”lack of monetary-policy credibility\” all?mean we have a potential for \”notable currency weakness,\” she said.?

Record high

Societe Generale forecasts how the rand will strengthen 17% to 2.65 per lira after 4 seasons, from today\’s 3.11, that is already in close proximity to an archive high to the South African currency, depending on data provided by Bloomberg time for 1980.

In April, JPMorgan recommended going long to the lira about the rand once the exchange rate was 3.72. It closed the trade a month later after it lost about 3%. In most, the brand new York-based bank suggested the thought to clients six times a year ago, but it surely only created profit once.

Bank of the usa recommended acquiring the lira against the rand on January 11 at 3.28 by using a target of 3.5 along with a stop-loss — or time investors should end a trade that is not produced a profit — of 3.15. Three months earlier, it closed a similar trade if the rate was 3.76 per lira; it had targeted the rand weakening to 4.2.

\”I don\’t trust the lira-rand pair, though I realize it is extremely much in style while in the traders\’ community to get a reason I simply can\’t understand,\” reported by Cristian Maggio, your head of emerging-markets research at Toronto-Dominion Bank.

Rather than making specific bets on how individual emerging currencies will diverge from 1 another, using the dollar is easier, as you can go on a take on third world countries in its entirety, since their currencies are often partially correlated, he was quoted saying.

\”Playing lira-rand is comparable to gambling,\” Maggio said.

? 2018 Bloomberg

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