On Monday, the rand remained on the front foot strengthening against the US dollar.
- The Moody’s statement has provided SA and the rand some breathing space. The credit ratings agency decided to spare South Africa the indignity of junk status, and stopped short of downgrading South Africa from its BAA3 status. However, Moody’s said they would assess the situation again in three months’ time, after changing their outlook from “stable” to “negative”.
- Relative calm after last week’s storm. Big budget announcements have the potential to spook the market and see the rand value drop at an alarming rate. Before the weekend, Mboweni’s speech. Negative unemployment data and big questions over the plans to rescue Eskom created something of a perfect storm. With fewer “major” issues to contend with this week, the impact of Moody’s statement and the dollar’s performance have been felt more positively in SA.
- A trade “truce” optimism between the US and China seems to be prevailing.
- In the US, factory orders fell more-than-expected in September, indicating a slump in manufacturing sector.
- On the contrary, ISM-NY business conditions index rose in October.
- The Minneapolis Federal Reserve President, Neel Kashkari, stated that the central bank might not cut interest rates as long as economic growth maintained its current solid pace.
- The yield on benchmark government bonds fell yesterday. The yield on 2020 bond declined to 6.89% while that for the longer-dated 2026 issue fell to 8.40%.
In early trade on Tuesday, the US dollar is trading 0.2% lower against the South African rand at R14.7895, while the euro is trading 0.2% lower at R16.4521. The British pound has declined 0.1% against the South African rand to trade at R19.0559.
By the close of trade on Monday, the euro had declined against most of the major currencies.
- Investors awaited Christine Lagarde’s first speech as the European Central Bank President. However, losses were capped, amid hopes that the US will choose not to impose tariffs on auto imports. Christine Lagarde kept her cards close to her chest as she delivered her first speech, disappointing markets hoping for hints of her monetary policy vision.
- On the data front, the eurozone manufacturing PMI slightly rose in October. However, it continued to remain in contractionary territory, hampered by concerns surrounding the US-China trade war and lack of clarity on Brexit.
- Meanwhile, the investor confidence index came in better-than-expected in November. In Germany, manufacturing PMI ticked up slightly in October.
In early trade on Tuesday, the euro has marginally slipped against the US dollar to trade at $1.1124, while it has weakened 0.1% against the British pound to trade at GBP0.8634.