By the close of trade on Monday [Martin Luther King Jnr day], the South African rand strengthened against the US dollar.

  • Investors may take Janet Yellen’s expected endorsement of a market-driven exchange rate as an additional green light for the U.S. currency’s long-term downtrend. The U.S. Treasury Secretary-designate will affirm the U.S.’s commitment to a market-determined dollar value on Tuesday, the Wall Street Journal reported. The comments could fuel speculation authorities will not object to a softer greenback, which earlier this month fell to a two-year low against its major peers. Investors are already doubling down on wagers that stand to profit if the currency weakens further, emboldened by an incoming Democratic administration that is prepared to unleash more fiscal stimulus to help the economy recover.
  • US equities fell for a second day on Friday as investors reassessed President-elect Biden ability to implement his pandemic relief spending plan. Soft US data and US banks underperformance didn’t help sentiment either. A safe-haven bid lifted the USD and weighed on longer dated UST yields while oil led the declines within commodities. US equities futures traded in negative territory during our APAC session on Friday reflecting a cautious reaction to President-elect Biden’s pandemic relief package.
  • Meanwhile, the country’s second wave of Covid-19 infections and renewed power cuts by Eskom have dampened domestic economic growth outlook investor sentiment.
  • According to official national accounts data, China’s economy grew by 2.3% in 2020 – its weakest rate of growth since the end of the Cultural Revolution in 1976. A downward revision to growth in 2019 – to 6.0% (from 6.1% previously) – helped add some additional strength to the full year growth rate. It is worth noting an inconsistency between the annual and quarterly data – with the sum of quarterly growth rates suggesting slightly slower annual growth (at around 1.9%).
  • The yield on benchmark government bonds mostly fell yesterday. The yield on 2026 bond fell to 6.64%. Further, the yield on 2023 bond declined to 4.45%, while that for the longer-dated 2030 issue rose to 8.83%.

In early trade on Tuesday, the US dollar is trading lower against the South African rand at R15.1166, while the euro is trading lower at R18.2872.   The British pound has declined against the South African rand to trade at R20.5626.

By the close of trade on Monday, the euro declined against most of the major currencies.

  • The European Central Bank is pushing banks to improve how they control risks when they extend credit to highly-indebted companies, a growing business that promises both higher returns and a greater potential losses than traditional lending. The ECB is considering measures including extra capital requirements for banks that don’t adequately address the risks they face in making leveraged loans.
  • The German Bundesbank monthly report indicated that the German economy is managing to stay afloat but could suffer a “sizeable setback” if coronavirus curbs are extended again. Moreover, it indicated that the economy likely stagnated but did not shrink in the last three months of 2020 as a rebound in industry and construction made up for a slump in hospitality and retail sectors.

In early trade on Tuesday, the euro has advanced against the US dollar to trade at $1.2097, while it has marginally gained against the British pound to trade at GBP0.8890.