Tag: pressure

By Lameez Omarjee for Fin24 

The rand came under “massive pressure” on Tuesday morning, having weakened from R13.63 to R13.90, following news that US President Donald Trump is threatening new tariffs on Chinese imports.

TreasuryONE’s lead dealer Wichard Cilliers said in a snap note that all eyes would now be on the trade spat.

By 09:14 the local currency was trading 1.92% weaker at R13.90 against the US dollar after breaching this level for the first time since November 27 last year when the rand traded at R14.00/$.

“The trade wars are heating up with US president Trump to identify $200bn in Chinese imports for additional tariffs of 10% and on another $200bn after that if Beijing retaliates,” said Cilliers.

Trump reportedly said that the United States will no longer be taken advantage of on trade by China and other countries in the world. “We will continue using all available tools to create a better and fairer trading system for all Americans,” Trump said.

The IMF noted that this could place global growth at risk.

Bloomberg reports the tariffs could be the latest round of punitive measures in an escalating dispute over the large trade imbalance between the two countries. Trump recently ordered tariffs on $50bn (R692.77bn) in Chinese goods in retaliation for intellectual properly theft. The tariffs were quickly matched by China on US exports.

Apart from the trade wars, locally load shedding is also adding to currency weakness, commented NKC Africa Economics.

NKC expects the rand to trade within a range of R13.65/$ to R13.95/$.

RMB economist Mpho Tsebe noted that the rand was among Monday’s worst-performing emerging market currencies, along with the Colombian peso and the Thai baht.

“Given the fragile growth outlook and inflation contained within the 3%-6% target band, the SARB (South African Reserve Bank) is unlikely to increase interest rates to support the currency,” she said.

Peregrine Treasury Solutions’ Bianca Botes said investors are dumping emerging markets for safe haven assets, including US treasury bonds. “South Africa, due to the liquidity that our local market offers, often leads the losing streak, she said.

“Should these tensions elevate and strong data from the US keeps making its way to market, emerging market currencies will remain under pressure and one could very well see the rand target R14/$,” Botes warned.

However, Andre Botha, senior currency dealer at TreasuryONE was optimistic that the rand could recover.

“We still believe that the rand is overdone at these levels and should the tide turn and risk-taking behaviour start taking precedent again the rand could stage a comeback.” He echoed views that the rand’s performance largely depends on global events rather than local factors.

Pressure on retailers may lift in Q4

While there is no outright good news for retail, analysts say the last quarter of 2017 is unlikely to plunge the sector to new lows.

“The interest rate cut and lower inflation numbers should see conditions improve for consumers on the balance,” says Old Mutual investment professional Meryl Pick.

“There may be a lag and the improvement could be muted to begin with. We may see a marginally better fourth quarter compared with last year.”

The South African Reserve Bank surprised markets with an interest rate cut of 25 basis points in July. In the same month, inflation fell to its lowest level since November 2015.

Inflation, as recorded by the consumer price index, dipped to 5.1% in June, from 5.4% in May.

Pick says despite this encouraging data, retailers had indicated that trading conditions would remain tough for the rest of 2017.

Cratos Wealth portfolio manager Ron Klipin says there was good news for retail shares at their current prices.

A year ago, Pick n Pay’s share price was trading at about R80.76. The share currently trades at about R62.84.

Mr Price Group was at about R228.50, but has since fallen to about R175.66.

“Looking at retail counters, prices are becoming more attractive and may see some buying because of the value they offer at these prices. But the conditions in the sector itself aren’t great,” says Klipin.

Klipin says there was a lack of confidence in the market and the economy, while household incomes were under pressure.

“There are a lot of pluses and minuses and anything could change the balance. There is still a possibility for a downgrade, but the lower level on inflation appears to be a positive aspect.”

In clothing retail, Pick and Klipin says Mr Price Group and TFG were best placed to survive the economic environment.

In food retail, Klipin says Shoprite would fare best, being affordable for most consumers. The retailer’s African operations would also help support it.

By Colleen Goko for Business Day www.businesslive.co.za

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My Office News Ⓒ 2017 - Designed by A Collective


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