MARKET WRAP: Rand weakens to one-month low after weak data from China

The rand weakened as much as 1.6% on Tuesday, touching R19/$ for the first time in about a month, as global risk sentiment deteriorated after another round of disappointing economic data from China, traditionally the biggest driver of commodity prices.

Matters were compounded by Moody’s Investors Service downgrading the credit ratings of some smaller US banks, reigniting memories of the mini banking crisis in March when SBV Bank and others collapsed, sparking a sell-off in the sector. 

The rand was trading at R17.60/$ less than two weeks ago before global risk aversion threw its rally off course. Emerging-market assets tend to suffer when global sentiment sours because they are perceived to be riskier relative to their developed counterparts. 

The rand’s weakness was compounded by a stronger dollar, which acts as a safe-haven currency during times of uncertainty. 

China’s imports contracted by 12.4% year on year in July, far worse than forecasts of a 5% drop. Exports fell by 14.5%, compared with the 12.5% decline tipped by economists. 

“The trade data from China was undoubtedly disappointing as it once again showed sluggish demand both domestically and externally, which is consistent with what we’ve seen elsewhere,” said Craig Erlam, senior market analyst at Oanda. 

“But while we’ve seen plenty of evidence of this in recent months, imports and exports were well short of expectations.”

Commodities were broadly weaker, with platinum sliding 2.1% to $899.80/oz and gold down 0.51% to $1,925.75/oz, both pressured by a stronger dollar. 

“It seems to be a perfect storm at the moment,” said Greg Katzenellenbogen, senior portfolio manager at Sanlam Private Wealth, referring to China’s trade data, which he said triggered global jitters, and the US Federal Reserve's apparent determination to bring inflation back to its 2% target despite lingering worries of policy overtightening.

“It could be a tough quarter for global markets and these worries are beneficial for the dollar and not so much for emerging markets,” Katzenellenbogen added. 

The JSE ended also weaker on the day, though the softer rand capped the losses of some of the big dual-listed stocks. 

The all-share index shed 0.23% to settle at 76,837.44 points, dragged down mostly by resource counters after commodity prices fell on growth concerns in China. The top 40 closed 034% weaker.

However, banks and broader financial stocks held up on the day despite a blowout in rand, which tends to push up yields on government bonds.

Markets in the US were weaker at mid-session, while European stocks ended the day lower. 

With Reuters

mahlangua@businesslive.co.za