Weekly market report by Andre Botha,
Senior Currency Dealer at TreasuryONE
US-China trade talks back in focus
So far this year has been a year of two months, with the Rand the best performing currency in January to the worlds worst performing EM currency in February. While the Rand had its own dramas during February, with the Budget Speech and load shedding to name a few we have seen global factors seeping through the past week.
Last week was dominated in terms of data and events by news out of the US. First off, President Trump indicated that he might not push through on the trade deal with China, which rattled the EM’s cage a bit. The US-China trade talks so far have been mostly positive and this was the first time that President Trump publicly stated that a no deal could be an option. The move in EM currencies in the past week suggests that the trade deal still packs enough punch to unsettle markets.
The second event was the release of the US GDP number for the fourth quarter of 2018. The number printed at 2.6% which beat estimates of 2.2% and puts into question the dovish nature of the US Fed regarding growth and with the US non-farm number out this week, it could set the cat amongst the pigeons should the non-farm number come out positive. With the fear of a global shutdown due to the impasse with the US-China trade talks, a good non-farm number will help the US dollar push stronger due to the safe haven nature of the US dollar.
Amidst the feeling that no resolution could be the result of the US-China trade talks, President Trump came out over the weekend and stated that the trade dispute could be sorted out by the end of the month. This again changed sentiment in favour of EM’s and this should help the Rand reverse the slump it went in to on Friday after hitting a high of 14.2500. More clarity is probably needed on the scope and practicality of such a deal for the sentiment to completely change and the Rand to fully reverse its losses.
This week we have the aforementioned non-farm payroll number which if it is a good number could see further US dollar strength. We have South Africa GDP fourth quarter number and current account data coming out, which has some market-moving potential should it under or overshoot estimates.
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