October 2, 2019

Market Summary 02/10/2019

Local & Regional:

Solving South Africa Energy Crisis May Mean Lower Renewable Cost

South Africa is asking independent power producers to lower electricity costs as part of the rescue of Eskom Holdings SOC Ltd., the insolvent state-owned utility.

Renewable energy project developers will discuss potential solutions ahead of a follow-up engagement with the government on Friday. The independent power producers and coal companies met with state officials last week, which resulted in an agreement “to make a contribution to the economic turnaround with a consideration to cost reduction,” the Department of Mineral Resources said by email.

Eskom Is ‘Too Big to Fail,’ African Development Bank Chief Says

South Africa’s struggling state power company Eskom Holdings SOC Ltd. is “too big to fail,” and the continent’s new free-trade deal will help Africa dodge the worst of a global economic downturn, the head of the African Development Bank said.

Eskom, struggling under the weight of about $30 billion in debt, has been hurt by poor management, not lack of investment, according to Akinwumi Adesina, president of the AFDB. The keys to its revival include cutting costs, shifting to renewable energy and selecting a skilled chief executive officer, he said.

South Africa’s Transnet says irregular expenditure up to 49 billion rand

JOHANNESBURG (Reuters) – South African state logistics firm Transnet said on Monday irregular expenditure in 2019 increased six-fold to around 49 billion rand from 8 billion rand in the previous year, mainly due to train replacement contracts.

A number of Transnet’s top executives, including its chief executive and chief financial officer, have been suspended or fired in the wake of an official corruption inquiry into a 54 billion rand contract to buy 1,064 locomotives.

JSE could struggle as US considers limiting portfolio flows to China

Concern that the US-China trade war can still escalate could weigh on the JSE on Monday, after news that the US is considering restricting capital flows to China.

Sentiment improved a little on Monday, after a Chinese manufacturing purchasing managers’ index earlier beat market expectations, rising to a 19-month high in September.

Talk of US restrictions had weighed on US equities late on Friday.

Apparently, many options have been discussed including limiting government pension funds and ways to put caps on Chinese companies on US exchanges, National Australia Bank analyst Tapas Strickland said in a note.


EMERGING MARKETS-Stocks, FX eye worst quarter in 2019 as trade tensions linger

Emerging market stocks and currencies were set for their biggest quarterly declines of 2019 on Monday, with renewed concerns on the U.S.-China trade front driving Shanghai shares to their lowest in nearly a month.

China’s equities benchmark and blue-chip index closed down about 1% after reports the Trump administration was considering delisting Chinese companies from U.S. stock exchanges in what could be a radical escalation in their prolonged trade dispute.

The news came ahead of the 70th anniversary of the birth of the People’s Republic, with local markets closed for a week starting Oct. 1. Washington and Beijing officials are due to hold negotiations next week.

Oil prices climb as positive China factory data eases demand concerns

Oil prices edged up on Monday after China’s factories unexpectedly ramped up production in September, easing concerns about demand in the world’s largest crude importer amid an ongoing trade war with the US.

Brent crude futures rose 9 cents to $62 a barrel by 5am SA time while US West Texas Intermediate (WTI) crude futures rose 13 cents to $56.04 a barrel.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) for September expanded for a second consecutive month as Chinese factories ramped up production and new orders rose, beating market expectations.

Gold dips as easing concerns over trade war support dollar

Gold prices edged lower on Monday, as the dollar firmed on easing fears of an escalation in the US-China trade war after a report that the US does not plan to delist Chinese companies from US stock markets.

The White House is not contemplating blocking Chinese companies from listing shares on US exchanges at this time, Bloomberg quoted Treasury spokesperson Monica Crowley as saying on Saturday.

This came after Reuters reported on Friday the US administration was considering delisting Chinese companies from US stock markets.

These are the currencies to watch if a trade deal is made

The Brazilian real will be the strongest emerging-market currency performer in the event of a US-China trade deal, while the Thai baht and Israeli shekel are among those that will be the least responsive, a Bloomberg analysis shows.

Based on sensitivity to the yuan during periods of trade-news flow driven markets, commodity-exporter currencies including the Chilean peso and the Russian Ruble showed the most consistent and largest moves. Asian currencies including the Won and the Ringgit also show consistently large moves, while those ranked at the bottom were all lower-yielding commodity importers.

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