The rand closed at R14.38 on Wednesday.
Here's how the day ended: 
USDZAR 14.3794
EURUSD 1.1357
EURZAR 16.3225
GBPUSD 1.3195
GBPZAR 18.9480
AUDZAR 10.1870
CADZAR 10.7630
CNYZAR 2.1462Z
ARJPY 7.7422
CHFZAR 14.3974
R186 8.75%
US 10 Year 2.59%
JSE -1.06%
FTSE -0.15%
S&P 500 -0.25%
  15:57
US stocks slip before fed announcement
US equities slipped Wednesday as cautious investors awaited the Federal Reserve policy decision and further news on U.S.-China trade talks.
Ten-year Treasury yields slipped.
The S&P 500 Index opened lower as FedEx tumbled after cutting its annual profit forecast. The dollar ticked higher after three days of losses, while two-year Treasury yields remained below the top of the Fed’s policy target range amid expectations of a dovish tone from the central bank. Apart from a hold on rate increases, markets will watch for any word on plans to end the Fed’s current bond-portfolio run-down.
“All eyes will be on the dot plot this afternoon, as most FOMC participants have signaled they are on board with the Fed’s new ‘patient’ guidance and those who have talked about it in terms of rates have indicated they expect no hikes or one hike this year,” Chris Low, chief economist at FTN Financial, wrote in a note to clients.
“The Fed is likely to reveal the end date for balance sheet runoff today, but may not yet be quite ready to reveal the disposition of maturing assets once runoff ends.”In Europe, a series of negative corporate news stories dragged down the Stoxx Europe 600 Index. Germany’s DAX Index led the retreat as BMW warned earnings would fall and chemical maker Bayer headed for the biggest drop in 15 years after losing the first phase of a U.S. trial over claims its weed killer caused cancer. In Asia, Japanese shares finished higher, while most other markets dipped.
The pound fell as UK Prime Minister Theresa May sought to extend the Brexit deadline to June 30, while the opposition called for the public to have the final say over the country’s EU exit. The euro held steady after German producer prices missed estimates. European sovereign bonds were mixed.
Elsewhere, emerging-market currencies and shares were steady. West Texas crude slid before the release of the weekly U.S. oil inventory report. - Bloomberg
  12:08
South Africa CPI came out at 4.1% YoY and 0.8% MoM which was in line with expectations.
TreasuryONE said this will likely support the decision that the SA Reserve Bank will keep rates on hold next week. 
The rand is currently trading at R14.51 to the greenback.
  09:26
Andre Botha, Senior Dealer at TreasuryONE said in a morning note to clients that the rand was in for a rough ride, particularly in terms of the impact of load shedding.
By 09:26, the rand was trading at R14.48 to the greenback.
“As we stated yesterday the rand is facing some tough headwinds which could lead to an interesting time for the rand in the short term," he said.
Botha said the rand lost about 15 cents on the back of Public Enterprises Minister Pravin Gordhan's briefing on Eskom yesterday and the news, revealed by Fin24, that the power utility and government was planning for Stage 5 and Stage 6.
"The rand closed around the R14.50 level after looking to push stronger in morning trade. The move lower was due to some positive sentiment in the market as we expect the US Fed to be dovish in tonight's press statement.
"Further headwinds that started to blow yesterday was the bump that the US-China trade talks suffered from China looking at not sticking to their commitment to buying several Boeing 737 aircraft. This has caused a little uncertainty in the market with the leaders of the two countries only meeting in April.
"Coupled with the uncertainty on whether the UK will get the desired extension from their March 29 deadline of Brexit has thrown more uncertainty into the market melting pot.
"The latest development in the load-shedding conundrum will make Moody's rating review at the end of the month a bigger event than we expected a couple of weeks ago.
"The headwinds faced by the rand will surely see the rand gain less ground than its EM peers should the Fed be dovish tonight, but in the same breath weaken more if the Fed surprises markets. Locally, we have CPI data out this morning but the main event will be the Fed later on this evening.”
Peregrine Treasury Solutions's Bianca Botes also said that the rand remained on the back foot as SA's electricity woes weighed heavily on the local unit.
"Local CPI data is expected to show an uptick in inflation as a weaker ZAR and increasing fuel prices take their toll. All eyes will be on the Fed later today with markets expecting the same dovish and patient tone with an unchanged federal funds rate.
"Any deviation will lead to some volatility in the currency markets. The rand opened at R14.50/$ today and the expected intraday range is R14.44 to R14.58," she said.
  08:06
Asian stocks mixed before fed
Asian stocks traded mixed early Wednesday as investors held back from making big changes prior to the Federal Reserve’s policy decision.
Treasuries and the dollar steadied.
Shares in Japan, South Korea and Australia edged lower. A rally in US stocks earlier sputtered out after a report that US and Chinese negotiators remain at odds on aspects of their current trade talks soured sentiment.
A rally in oil stalled. Money managers will be looking for clues on future policy from the Fed Wednesday after its dovish shift in recent months helped reboot global equities on bets that interest-rate hikes will be put on hold to support the economy.
News that the Trump administration is concerned that China is pushing back against US demands threatens to curb hopes of a deal.
Elsewhere, a senior European Union official said the bloc is likely to tell Theresa May that she must decide by mid-April whether to extend Brexit until 2020 or risk leaving in three months without a deal.
The euro edged higher as data showed German investor confidence rose for a fifth straight month.
  08:05
Palladium tops $1 600
Palladium topped $1 600 an ounce for the first time, and there’s little sign of the rally slowing as global supply tightens.
The price of the metal - mainly used in autocatalysts in gasoline vehicles - has almost doubled from a recent low in August. Demand has remained robust as manufacturers scramble to get hold of palladium to meet more stringent emissions controls, particularly in China, even as auto sales in key markets slow.
 
 
 
Credit: TreasureOne

South Africa’s central bank says rising fuel and electricity prices posed a domestic risk to the inflation outlook and impact on its 2019 growth.

The apex bank governor, Lesetja Kganyago, gave the remarks on Wednesday after the latest fourth-quarter data showed an annualised growth of 0.8 per cent.

Besides, Kganyago said the impact of the volatile Rand currency and tightening global financial conditions were also being monitored for possible inflationary impacts.

The governor, however, maintained that he expected the economy to grow by 1.7 per cent this year and two per cent in 2020.

The South African government is forecast to be hit by a tax revenue shortfall of almost R43 billion for the tax year ending next month, Finance Minister Tito Mboweni indicated in his budget speech on Wednesday.
 
There were pronounced risks to the local economic outlook with the main risk of concern being power utility Eskom and its financial woes, the 2019 budget review report indicated.
 
The report indicated that government tax revenue for the 2019 fiscal year would come in at R43 billion under the target set at the 2018 budget speech.
 
“There are pronounced risks to the economic outlook. The main risk of concern is Eskom. Failure to fully implement the reconfiguration of Eskom could lead to a negative market reaction that would prompt capital outlflows, with greater pressure on the rand. It would also perpetuate weak investor confidence and reduce economic growth,” the report said.
 
In the worst case scenario, National Treasury is forecasting negative 1% growth this year while its best-case scenario is just over 2% growth.
 
Mboweni cut the National Treasury’s forecast for economic growth for this year from 1.7% to 1.5% due to “fragile recovery in employment and investment, and a less supportive global trade environment”.
 
By 2021, the National Treasury’s best-case scenario is growth of 3% and its worst-case scenario is 1%.
 
“The economic and revenue outlook has deteriorated since the October 2018 medium-term budgetary policy statement and funding pressures from state-owned companies have increased,” the medium-term budgetary policy statement said.
 
“Several other state-owned companies are also in financial distress and have requested government support. As a result, the contingency reserve has been revised up by R6 billion in 2019/20 and any funding provided will be offset by the sale of non-core assets. Additional reforms to strengthen the governance, finances and operations of state-owned companies will be announced in the months ahead,” the 2019 budget review report said.
 
State companies that are looking for bailouts include the South African Broadcasting Corporation (SABC) and Denel.
 
“Several state-owned companies face negative cash flows and are financing operations from debt, which has become increasingly difficult to raise. This moves them perilously close to default unless they receive some form of recapitalisation.”
 
In another worrying sign, debt owed to municipalities is increasing. At the end of March, debt owed to municipalities is forecast to climb to almost R159 billion from almost R99 billion at the end of March 2015.
 
Of debts owed by municipalities that are more than 90 days in arrears, Eskom is the major creditor – it is owed R12.8 billion – followed by water boards with R6.4 billion.
 
“From July 2018 to June 2019 municipal financial year, 113 municipal councils adopted unfunded budgets, up from 83 the prior year.”
 
The government is expecting to issue $2 billion (about R28 billion) in debt by the end of the 2019 fiscal year.
 
Over the next three years, the government will raise an additional $8 billion (about R114 billion) in global capital markets.
 
“This year’s budget underlines the National Treasury’s continued commitment to these requirements in a difficult environment in which economic growth remains weak, public debt and debt-service costs have accelerated and governance and operational concerns are manifest across the public sector,” the review report said.
 
“Weak economic performance and residual problems in tax administration have resulted in large revenue shortfalls,” the report said.
 
“The deteriorating financial position of state-owned companies has put additional pressure on the public finances,” the report added.
 
“The government’s efforts to reform state-owned companies and the launch of the infrastructure fund are expected to increase growth and investment in the year ahead,” the 2019 budget review report said.
 
For the 2020 fiscal year, consolidated government expenditure is forecast to R1.83 trillion.
In truth, the currency started from a very low base: the Nenegate crisis in 2015.
Its performance this year has not been stellar, but most experts expect it to remain below R15/$ in 2019.
Over the past three years, the rand has been the world's strongest major currency against the dollar.
 
The rand has strengthened by almost 6.3% against the dollar since mid-December 2015, according to data compiled by the independent analyst Johann Biermann. By comparison, the Mexican peso weakened by more than 16% and the Turkish lira lost an almighty 79% of its value. The UK pound fell almost 20% over the past three years as Brexit fears wreaked havoc.
 
Only the Russian rouble, which gained by 6% over this time,  the euro (+3%) and the yen (+6.2%) could keep up with the rand.
 
It is of course worth noting that three years ago the rand was in a very bad state amid the Nenegate crisis.
 
On December 9th 2015, former president Jacob Zuma fired then finance minister Nhlanhla Nene, replacing him with back-bencher Des van Rooyen. 
 
"After all is said and done, the rand has been one of the strongest currencies over the last three years - obviously benefiting from the low base created by Nenegate," Biermann said this week. "Still, not many would've predicted that the rand would outperform these majors in years to come."
 
Unfortunately, 2018 has been tough on the local currency: the rand has lost a painful 14.5% of its value against the dollar - on par with the rouble (-15%) and the Brazilian real (-17%). Even traditionally stable currencies - including the Australian dollar (-8%) and the euro (-6%) - took a hit.
 
The rand/dollar rate over the past five years. (So
The dollar/rand rate over the past five years. (Source: XE)
But most currency experts are not expecting the rand to take a massive hit in 2019.
 
The currency is expected to end 2019 between R12 to R15 a dollar, according to almost 70% of the 160 South African-based bankers, CEOs, CFOs, corporate treasurers as well as foreign exchange and hedge fund executives polled at the Bloomberg Foreign Exchange Summit last week. 
 
The rand will probably trade near R13.40 to the dollar by the end of next year, Standard Bank economist Elna Moolman said, according to a press report.
 
"The expectation is partly based on a dollar story, but also on the assumption that we will see political and policy improvements to support a stronger currency."  
 
Moolman said the next big local events that could influence the rand are the Budget in February, the response from Moody’s (the only agency that has not yet rated South Africa as "junk") and then the natonal elections, expected in May 2019.
 
If the US economy weakens and/or the equity markets fall apart, which means that the Fed won’t hike interest rates by as much as expected, the rand may benefit, according to Biermann.
 
“Also, sentiment towards emerging markets has been very negative in 2018. If it starts to turn, the rand will get a boost."
 
But there are risks – chief among them, Eskom’s R100 billion debt burden.
 
“If government took over the debt, our credit rating will be further downgraded – which will be negative for the rand.”
 
Ratings agencies have also been clear that further slippage in terms of property rights could prompt downgrades, Biermann said. 
 
 
Source: Bloomberg news 

Deep and liquid local debt capital markets have reduced the need for South African companies to borrow abroad, making them less vulnerable to a financial crisis than peers in Turkey and other emerging markets, according to Moody’s Investors Service.

Large external financing needs and a plunging currency are proving a toxic mix for Turkey’s corporate sector. But in South Africa, companies have enough access to local funding, and those that have turned to foreign debt used hedging strategies to cushion the effects of short-term currency fluctuations or buy time to adjust to long-term rand weakness, Moody’s said in a report dated 12 September.

 

In addition, most foreign borrowing by South African companies has been driven by offshore expansion and the debt is serviced with cash flows generated in the same currency, creating a natural hedge to currency weakness, the report said.

“Currency volatility in emerging markets has been one of the key focus areas for investors this year, particularly in terms of how it affects credit risk for companies,” Moody’s analysts lead by Dion Bate said in the report. “Despite continued rand volatility, we expect the credit quality of most South African companies we rate to remain broadly stable during the next 12 to 18 months.”

 
 

Foreign exposure

About 38% of South African non-financial corporate debt is denominated in foreign currencies, according to Moody’s. That compares with 56% for Turkey, or an amount of $336bn, almost triple the borrowers’ assets, according to data compiled by Bloomberg. The lira’s 40% slump this year will make servicing those loans more burdensome, lowering capital spending and GDP growth.

Moody’s expects the rand to remain volatile over the next year, driven by how successful the government is in implementing economic reforms, as well as global factors including the US policy path, trade tensions and emerging-market turmoil. That will complicate the operating environment and investment decisions for South African companies, Moody’s said.

News24

The South African Reserve Bank has written to the National Credit Regulator requesting a probe into loan-origination fees charged by Capitec Bank Holdings Ltd., according to a person familiar with the matter.
 
The referral came after the issue was raised in a report by short-seller Viceroy Research in January, said the person, asking not to be identified because the matter is private. The investigation is ongoing, the person said. Capitec Chief Financial Officer Andre du Plessis said he was unaware of the central bank’s referral, or of an investigation by the Johannesburg-based NCR.
 
Capitec shares dropped as much as 4.3 percent and were trading down 1.9 percent at 870.89 rand at 9:05 a.m. in Johannesburg. The stock has declined 21 percent so far this year, more than any other lender in the six-member FTSE/JSE Africa Banks Index, which is down 5.3 percent.
 
In the January report, Viceroy said Capitec boosted its income by charging excessive fees on its multi-loan product, which carried a monthly charge for allowing a previously vetted customers to extend their facility by answering some questions. While Capitec said it terminated the product in 2016, after rules introduced by the NCR meant it was no longer viable, Viceroy said that the lender rebranded it and that Capitec’s methods risk over-indebting consumers.
 
Capitec denied this, saying Viceroy did not understand the product or how its processes work. The NCR had previously probed the multi-loan facility and was satisfied with the fees and interest charged, Capitec said on Feb. 8.
 
‘Very Active’
Both the Johannesburg-based NCR and Pretoria-based central bank declined to comment.
 
The central bank monitors lenders for their compliance with rules ranging from their operations and capital levels to staffing and money laundering, with the ability to fine companies or revoke their licenses. The NCR can also administer financial penalties on lenders which violate the National Credit Act, legislation aimed at protecting consumers from becoming over-indebted.
 
Officials from the central bank and the NCR told lawmakers in March that many of the allegations made by Viceroy were not new and that not all of them were accurate.
 
“The Reserve Bank is very active in doing ongoing reviews at all the banks,” said Du Plessis, speaking more broadly on the regulator’s oversight. “If anything bothers them, they actually contact us or ask that we report on something. That happens on an ongoing basis.”
 
On Friday, Capitec announced it had reached an agreement with Summit Financial Partners, which was challenging the lender in court and before the NCR on behalf of six complainants. The cases, which mostly centered on Capitec’s now defunct multi-loan facility, were withdrawn.
 
Source: Bloomberg News
JOHANNESBURG - South African markets are pricing in the possibility of an interest rate hike this year as the rand falls, even though economists say this is unlikely as inflation expectations have not breached the upper end of the central bank’s target range.
 
South Africa’s rand has slumped nearly 9 percent against the dollar year to date, hurt by global risk-off sentiment and poor domestic economic data. It fell to a 7-month low last week.
 
Capital Economics senior emerging markets economist John Ashbourne said the currency fall has raised speculation that South African policymakers would follow some emerging market countries that have started raising interest rates.
 
Some have moved as a pick-up in their economy or other factors push up inflation, while others are being forced to act to steady their currencies.
 
South Africa’s forward rate agreements are implying a 25 basis-point hike in interest rates by the end of the year.
 
But a Reuters poll found last week that economists expect the South African Reserve Bank to keep its repo rate unchanged at 6.5 percent until 2020.
 
“We think that markets are getting ahead of themselves by pricing in rate hikes in South Africa... We do not think that this is likely,” Ashbourne said in a note.
 
“Policymakers have explicitly said that they will not react to currency moves until they see a lasting effect on domestic inflation. And the pass-through between currency moves and inflation is weaker in South Africa than in many other EMs.”
 
The central bank said in May it would maintain its vigilance to ensure inflation remained within the 3 to 6 percent target range, and would adjust the policy stance should the need arise.
 
The bank currently forecast CPI to average 5.1 percent in fourth quarter 2018, and 5.2 percent in the last quarters of 2019 and 2020. The next interest rates decision and inflation forecasts are due on July 19.
 
South Africa’s consumer price inflation slowed to 4.4 percent year-on-year in May as the rise in food prices eased.
 
“A weaker currency makes (the central bank) more fearful but it depends on how it impacts inflation twelve months out,” Citi economist Gina Schoeman said.
 
“We don’t think we will see rate hikes in 2018. It doesn’t mean there is no risk of it, and the market is correct to price for that.”
 
Schoeman said rate hikes over the past five years happened when the inflation forecast for twelve months out had breached 6 percent and stayed above that for two or three quarters.
 
“So it has to not only breach 6 percent, it has to also breach it for a sustainable amount of time. If it is not doing that, then we don’t have a risk of interest rate hikes,” she said.
 
Mexico’s central bank raised its benchmark interest on Thursday in a bid to counteract the effects of a peso slump and keep a downward inflation trend on track.
 
Argentina, Turkey, India and Indonesia are among the other countries hiking rates.
 
-Reuters 
Inflation eased to 4.4% for May compared to 4.5% in April, despite the implementation of a VAT hike implemented in April.
 
This is according to Statistics South Africa (StatsSA), which on Wednesday released the consumer price index figures for May. The index increased 0.2% month-on-month.
 
The market consensus was for CPI to accelerate to 4.6%, and in a market update on Wednesday RMB economist Isaah Mhlanga had projected an increase to 4.8% having considered the VAT pass-through.
 
Mhlanga also expected the fuel price and weak rand to impact inflation. “The oil price and a weak rand have had a huge impact (on inflation), but the second-round effects will only be visible in the months to come and they are difficult to quantify and separate from the first-round effects,” said Mhlanga.
 
He expects the current account deficit data due on Thursday to be a “shock to the currency”, RMB projects it to be 5% of GDP.
 
By 10:23 the rand was trading 0.44% firmer from the previous close at R13.68/$. 
 
Contributors to May's inflation include food and non-alcoholic beverages which increased 3.4% year-on-year. Inflation for restaurants and hotels increased by 5% year-on-year.
 
Transport contributed to the month-on-month inflation, the index increased 1.2%.
 
In May the CPI for goods increased by 3.5% year-on-year, unchanged from April. The CPI for services increased by 5.3% year-on-year, also unchanged from April
 
South: Fin24

Far more conservative and far less leveraged than their global counterparts, South African banks may yet face massive fines from the country’s competition authorities for allegedly manipulating foreign exchange trades.

Barclays Africa, JPMorgan South Africa and Investec Ltd are among the traders in foreign currencies that have “allegedly been directly or indirectly fixing prices in relation to bids, offers and bid-offer spreads in respect of spot, futures and forwards currency trades”, the Competition Commission said in a statement on Tuesday.

Referring to the alleged collusion as the “ZAR domination”, the Commission said it was carried out through electronic messaging platforms used for currency trading, enabling the banks to coordinate their trading activities when quoting customers who buy or sell currencies. “This coordination has the effect of eliminating competition among the Respondents, as it enabled them to charge an agreed price for a specific amount of currency,” the Commission, whose investigation focuses on trade in currency pairs involving the South African rand, explains.

Other banks involved include BNP Paribas; BNP Paribas South Africa; Citigroup Inc.; Citigroup Global Markets (Pty) Ltd; Barclays Bank Plc; JPMorgan Chase & Co; Standard New York Securities Inc. and Standard Chartered Bank.

“Conduct of this nature distorts the price of foreign exchange and artificially inflates the cost of trading in foreign currency paired with the South African rand. Indications are that this conduct was prevalent offshore, but with this investigation we are sending a clear message that we will pursue cartels affecting South Africa wherever they take place,” Competition Commissioner, Tembinkosi Bonakele, said in a statement.

South africa ZARThe South African Reserve Bank (Sarb) said it understands that the alleged instances of market misconduct took place in foreign jurisdictions and “do not relate to actions that took place in South Africa”.

“In so far as there are links to South African entities, the Registrar of Banks has been assured by such entities that they will fully cooperate with the investigation of the Competition Commission,” it said in a statement. The Reserve Bank said its recently announced review of local forex trading operations, with the help of the Financial Services Board (FSB), is not informed by any indications of “widespread misconduct”.

Global banks cough up

Forex rigging has come under the spotlight in recent years, with large UK banks paying fines and settlements as a result of their forex traders sharing client orders and trading positions with competitor forex traders.

According to Bloomberg, at the beginning of last year, global regulators began probing evidence that traders at large banks (including JPMorgan Chase, Citigroup, UBS, Barclays and others) were using online chat rooms to share information in order to manipulate forex prices and maximise profit.

More recently, The Telegraph reported that the UK’s Financial Conduct Authority (FCA) is expected to fine Barclays, Royal Bank of Scotland, UBS, JPMorgan and Citigroup in excess of £4 billion (R73.8 billion) for “currency rigging”.

Barclays alone is expected to pay at least £250 million (R4.6 billion), as it chose not to settle with the FCA in November. The group earned more than £5.5 billion in adjusted profit before tax for the 12 months to December 2014.

If these fines provide any indication of the sums the Competition Commission is considering, local banks, which have so far said very little about the probe, could be in for a real hiding.

“Investec will co-operate with the Competition Commission with respect to their investigation. Unfortunately, at this stage we do not have further information with respect to the nature of the investigation and queries should be directed to the Competition Commission directly,” Investec, whose Southern Africa operations earned some £297.4 million (R5.5 billion) for the year to March 2014, said in an emailed statement.

The global specialist bank and asset manager will issue results for the 12 months to March 31 2015 on Thursday.

Bloomberg reported that both Standard Chartered and Barclays Africa said they will cooperate with the investigation, while Standard Bank and JPMorgan declined to comment and Citigroup was not available for immediate comment.

 

Credit: moneyweb.co.za

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