Rand reacts positively after Democrats win control of US Senate
JOHANNESBURG - THE MARKET reacted overwhelmingly positive today following news that the Democrats had won the control of the US Senate paving the way for the larger stimulus package which hingered on the November elections standoff between outgoing President Donald Trump and President-Elect Joe Biden.
Biden inevitable’s rise to the office boosted risk sentiment with investors now hoping that the vote cleared doubts over Trump’s continued refusal to accept the election results.
Analysts generally assume a Democrat-controlled Senate will be a net positive for economic growth globally and thus for most risk assets, but negative for bonds and the dollar as the U.S. budget and trade deficits may widen further.
The rand exchanged hands 0.15 percent percent stronger at R15.05 against the greenback earlier in the day from an overnight close of R15.08.
“Markets reacted positively to news out of Georgia that Democrats gained control of the Senate,” said Axi markets analyst Milan Kutkovic. “While a Blue Wave could pave the way for stricter regulations and tax hikes, investors try to see it from a positive side: Further stimulus measures are likely to follow and without a months-long stalemate.”
The All Share Index rose 0.56 percent to 62 200.98 points while the JSE Top40 Index followed suit, inching up 0.56 percent to 57 193.78.
Government bonds also firmed, with the yield on the benchmark 2030 bond down 2 basis point at 8.665 percent.
Biden got the nod after Congress resumed counting the Electoral College votes following a night of chaos in which the pro-Trump rioters interupted the session when they violently stormed the Capitol.
The Senate rejected by a 93-6 margin, paving the way for Biden’s inauguration on January 20.
Reports claim that four people died during the chaos, including the woman who was shot and killed at the Capitol, and one woman and two men who died because of medical emergencies.
This morning, Trump changed his tune, charging that even though he still disagreed with the outcome off the election, there would be an orderly transition to Biden’s ascension to the office.
Axi chief global market analyst Stephen Innes said the Democrats winning the Georgia run-off signalled that cross-asset price action was signalling as unquestionably reflationary.
Innes said the market was optimistic of a razor-thin effective Senate majority curbs tax hikes, both corporate and personal, leaving markets to focus on higher spending that would be consistent with a US Treasury curve bear steepening, an ongoing rally in industrial metals, a rally in Emerging Market equities, and a weaker US dollar.
“Progress towards improving the US economy's supply-side via infrastructure spending would encourage broad-based short USD strategies on higher commodity prices and expectations that the US Federal Reserve would allow the economy to 'run hot' and leave policy unchanged in the event of above-target CPI inflation,” Innes said. “A risk to watch - albeit not evident yet - is that the Fed does not indicate that it is willing to step in to curb an aggressive UST curve bear steepening that would leave high-yielding EM currencies vulnerable on higher yields.”
However the rand’s march was halted by record numbers of Covid-19 infections and deaths in the last 24 hours, with cases rising by 21 832 and deaths by 844.
By 11:00 this morning, it had retreated slightly to R15.11 against the greenback.
BUSINESS REPORT ONLINE