Rand Strengthens as Government Looks to Avoid a Political Conundrum

  • Market Overview

The rand strengthened to a four-week high on Wednesday after the government indicated it would consider moving this year’s annual BRICS Summit to China. “This follows a legal opinion by a technical team appointed by President Cyril Ramaphosa to look into the legal implications of hosting Russian President Vladimir Putin who is under an arrest warrant from the International Criminal Court (ICC). SA is a signatory to the Rome Statute which established the ICC and would be obliged to arrest Putin should he arrive in the country.” Business Day reported. As such, the rand was able to recover from its severely oversold stance, rallying below R19/$ in midday trade as the local geopolitical risk premiums appeared to be easing. The FTSE/JSE All Share Index (ALSI) rose about 0.37% on Wednesday, as gains in financials and resource-linked sectors countered declines in shares of heavyweight tech companies and industrials. On the data front, SA’s business confidence fell to a near three-year low of 27 points in the second quarter of 2023, amid persistent load shedding and challenging economic conditions.

US stocks ended mixed on Wednesday as tech heavyweights buckled under the pressure of higher Treasury yields following Canada’s unexpected interest rate hike. Investors also remained cautious ahead of the announcement of inflation data and the Federal Reserve's monetary policy decision next week. European equities finished marginally lower on Wednesday with markets languishing and sentiment sour. The Pan-European STOXX 600 fell 0.19%, with sectors heading in opposite directions. Meanwhile, retail stocks rose 2%, while oil and gas companies gained 1%.

Asia-Pacific markets fluctuated as China's trade data undershot expectations. Exports fell 7.50% y/y, significantly less than the 0.40% decline initially estimated, while imports fell 4.50% y/y, less than the anticipated 8% decline “as global demand was insufficient to sustain a recovery in outbound shipments,” Trading Economics added. The offshore yuan traded around 7.15 per dollar at 20h00, nearing its lowest levels in six months as poor economic data from China pointed to a challenging recovery path amidst slowing external demand.

On Wednesday, oil prices edged up as Saudi Arabia's commitment to deepen output curbs countered disappointing Chinese export data and climbing US fuel stocks. Brent crude gained 1%, trading at $77.05 a barrel at the closing bell. “Wednesday’s data also showed that crude oil imports into China, the world’s largest oil importer, rose to their third-highest monthly level in May as refiners built up inventories,” Trading Economics reported. Bullion slipped just over 1% to $1 945.62/oz. However, the precious metal is down from its 5% peak seen last month, since major central banks are expected to maintain higher interest rates on the back of ongoing inflationary pressures.

PSG Wealth Daily Investment Update, 8 June 2023

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