Markets / 8 November 2018, 06:20am / Kabelo Khumalo
JOHANNESBURG – The rand and JSE yesterday cheered the news that the Democrats had wrested control of the US House of Representatives from Donald Trump’s Republican Party in a move that might curtail the president’s trade and tariffs agenda.
The local currency breached the R14 mark against the US dollar for the first time since August and was bid at R13.97 by 5pm against R14.20 at the same time on Tuesday.
The US mid-term election results saw the dollar come under pressure as the Democrats won the House of Representatives for the first time in eight years.
The results were also interpreted as US dissatisfaction with leadership under Trump.
Bianca Botes, of Peregrine Treasury Solutions, said the local currency was upbeat on the US election results and was an indication of how politics trumps economics in the current landscape.
“Policy uncertainty will now be top of the agenda for investors as the Democrats will move to challenge the Republicans on what they deem as numerous unconstitutional policies,” Botes said.
“Eskom’s newly accepted board is also adding to the positive momentum of the rand, which broke below R14.00 against the dollar to trade at R13.95 in the afternoon session.”
Eskom, the cash burning power utility, announced that it had started a retrenchment process that so far is only limited to senior managers.
The local equities market also rallied on the back of US election results, with the all share index closing the trading session in the black up 250 points to 54 701 points, while the blue-chip Top40 index closed the session up 171 points to 48 296 points.
Gains on the JSE were led by financial stocks which rode the wave of a stronger rand.
Emerging markets have been battered by a trade war between the world’s two biggest economies, the US and China, as Trump insisted the US was not getting a fair trade deal from China.
Niel Wilson, the chief market analyst at Markets.com, said a split Congress would, in all likelihood, not stop Trump from doubling down on tariffs with China.
“It’s going to be harder for Trump to pass more tax cuts, and it may be that reform of Dodd-Frank will die.
“Pharmaceutical stocks may do well as a divided house probably takes reform of drug pricing off the agenda,” Wilson said.
The market focus today will shift to the US Federal Open Market Committee (FOMC), which will today announce its latest adjustment to monetary policy.
The FOMC under Jerome Powell has gradually increased interest rates as they try to prevent the US economy from overheating. Analysts from Merchant West in a note said the local currency was seen testing the R14 pivot, which could unlock further gains.
“Thursday’s (today’s) rate decision by the Federal Reserve will likely temper rand bulls in the session.
“South Africa’s rand firmed on Wednesday (yesterday), extending an overnight rally, as dollar buyers favoured caution and assessed US mid-term election results to gauge the possible impact on policy and consequences for global growth,” Merchant West said.