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21 / 02 / 19



British Pound

Reuters: Sterling weakened on Wednesday after three lawmakers defected from Prime Minister Theresa May’s ruling Conservative party in a move that could undermine her Brexit strategy. May has returned to Brussels to try to salvage her Brexit deal which was voted down by Britain’s divided parliament last month. But the decision by three pro-EU lawmakers to quit their party over what they called the government’s “disastrous handling of Brexit” cast fresh doubt over her ability to get any EU-UK deal approved, and that weighed on the pound. The British currency fell to the day’s low of $1.3012 after the resignations and was down as much as 0.4 percent on the day before recovering on comments by Spain’s foreign minister to Bloomberg that a deal was in the process of being “hammered out.” Analysts said the defections had pressured the pound by reducing the government’s working majority in parliament and had increased the possibility of a snap election. 


“An early election would presumably be fought under a different Conservative leader (May has committed not to fight the next election) and likely under a more Eurosceptic one,” said Adam Cole, chief currency strategist at RBC Capital Markets. “It is hard to argue either an election victory for a more Eurosceptic Tory party, or a Labour-led government would be anything other than negative for GBP,” he added. If May cannot persuade European Commission chief Jean-Claude Juncker or the British parliament to modify her deal, Britain could crash out of the world’s biggest trading block in 37 days. The main hurdle is the so-called backstop, an insurance policy to prevent the return of extensive checks on the border between European Union member Ireland and the British province of Northern Ireland. Uncertainty over those arrangements is weighing on the pound. Sterling surged above $1.3 on Tuesday in its biggest daily gain of the year against the dollar, partly on hopes of a breakthrough in the Brexit impasse. But traders said those bets had been misplaced. “I think they [the EU] could tinker with the language [of the deal] a bit, but whether it would be enough to convince 51 percent of MPs in parliament to vote for it is dubious,” said ACLS Global chief strategist Marshall Gittler. “I’d go short on the pound,” he added. Recent wild swings in the pound have underlined the currency’s volatile nature ahead of Brexit. Investors are skittish because May has yet to win parliamentary support for her deal six weeks before Britain is due to leave and options markets show jitters remain about the March 29 deadline.


US Dollar

Reuters: The dollar inched up on Thursday after minutes from the Federal Reserve’s last meeting revived expectations for a possible U.S. rate hike this year while investors shifted their focus back to trade issues for fresh directional cues. The greenback had risen slightly against the yen and trimmed losses versus the euro late on Wednesday after the Fed, in the minutes of its latest meeting in January, said the U.S. economy and its labor market remained strong, prompting some expectations of at least one more interest rate hike this year. The dollar index against a basket of six major currencies added 0.1 percent to 96.569, crawling away from a two-week trough of 96.286 marked on Wednesday. The Fed caught markets off guard last month after it took a dovish turn in its commentary, widely read as a sign it would suspend a three-year campaign to raise interest rates.


“The dollar drew some lift as the minutes appeared to have appeased market participants who were clinging to views that the Fed would hike rates one more time this year - but all in all, the minutes were in line with what the Fed said in January,” said Daisuke Karakama, chief market economist at Mizuho Bank. “The market’s focal point will now shift back to trade. The U.S.-China trade negotiation deadline could be extended and that may mean Europe and Japan could be faced with trade issues.” U.S. President Donald Trump on Wednesday said the United States would impose tariffs on European car imports if it cannot reach a trade deal with the European Union. The dollar was a shade weaker at 110.75 yen after rising 0.25 percent overnight. 



South African Rand

EWN: The rand was largely flat in afternoon dealings on Wednesday, recouping the bulk of losses suffered after finance minister Tito Mboweni presented the annual national budget. After an initial negative reaction to the budget, the currency settled down as traders assessed its impact on South Africa’s sovereign credit ratings. The rand was 0.6% weaker at 13.9600 per dollar by 0552 GMT, having earlier touched a low of 14.3700. “It was a tough budget, but the right things have been said by the finance minister which may be enough to avoid a credit ratings downgrade,” said Jan Sluis-Cremer, forex trader at Rand Marchant Bank in Johannesburg. Mboweni unveiled a $5 billion injection over coming years into cash-strapped utility Eskom in his maiden budget that also forecast wider deficits, rising debt and slower economic growth.


Government bonds were slightly firmer, with the yield on the benchmark government paper due in 2026 easing 0.3 basis points to 8.840%. On the bourse stocks hardly reacted to the budget as most heavily weighted companies earn more of their income abroad than at home. The benchmark JSE Top-40 index ended 0.9% higher 49,405 and the broader All-share index rose by the same margin to 55,691. On Thursday morning the rand is trading at R14.04 to the dollar, R18.30 to the pound and R15.91 to the euro.


Global Markets

Reuters: World stocks rose on Wednesday, hitting a four-month high on hopes for progress in trade talks between the United States and China, and a supportive backdrop from major central banks also helped push risk assets higher. Stocks started with a rally in Asia that pushed the MSCI world equity index to its highest since October after U.S. President Donald Trump said negotiations with China were going well and suggested he was open to extending the deadline to complete them beyond March 1. Many had feared U.S. tariffs on $200 billion worth of Chinese imports would rise to 25 percent from 10 percent if no trade deal was reached by then. European stock indexes also strengthened, with a regional index at a four-month high. Wall Street stocks were little changed, with the S&P 500 hovering near its 2019 high.


Emerging market stocks rose 1.48 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.29 percent higher, while Japan’s Nikkei rose 0.60 percent. Hong Kong’s Hang Seng gained 1 percent to close at the highest level since August. U.S. oil prices rose above $57 per barrel for the first time in three months supported by OPEC-led supply cuts and U.S. sanctions on Iran and Venezuela, but soaring U.S. production and expectations of an economic slowdown kept the market wobbly. U.S. crude rose 1.63 percent to $57.37 per barrel and Brent was last at $67.14, up 1.04 percent on the day. In currency markets this morning morning the euro was little changed at $1.1337 after being nudged off a two-week high of $1.1371 scaled earlier on Wednesday. A big mover in Asia was the Australian dollar, which was last down 0.15 percent at $0.7151. The Aussie rallied early in the session to a two-week peak of $0.7207 on strong domestic January employment data. But the currency quickly lost altitude, with traders attributing the slide to interest rate cut forecasts made by Westpac. Reserve Bank of Australia (RBA) Governor Philip Lowe had sent the Aussie tumbling early in February by stepping back from the central bank’s long-standing tightening bias, saying the next move in interest rates could be either down or up. “It is difficult for the Aussie to keep rising indefinitely when the RBA has seemingly switched to a dovish stance,” said Shin Kadota, senior strategist at Barclays.




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