Budget expectations

Finance Minister Tito Mboweni is expected to present a budget that is better than October’s MTBPS, economists of RMB Global Markets Research Mpho Tsebe and Elena Ilkova 

"This is because year-to-date (YTD) expenditure growth of 4.6% is well below the MTBPS projection of 7.7% and the five-year historical average of 8.1% at a similar time of the year.

"Given the nature of underspending, particularly the underrun in capital projects in the Department of Transport, it is unlikely that expenditure will accelerate in the remaining fourth quarter of FY18/19 to catch up to the 7.7% projected at MTBPS," they explained.

"Extrapolating the YTD spending trend for the full year, expenditure could be revised lower by R43bn in FY18/19. This would be more than sufficient to curtail the R18.2bn shortfall in tax revenue and also gives government some wiggle room to potentially provide Eskom with a cash injection of about R10bn-R15bn to alleviate the entity’s immediate liquidity constrains."

"The size and structure of the provision of support for Eskom will be a critical consideration.

"Eskom remains a significant fiscal risk and providing it with financial support might be credit-neutral for the sovereign, only if this is accompanied by broader measures to stabilise the power utility.

"If support is not part of simultaneously taking broader measures (such as a significant cost-saving drive or tariff hikes), the implication for the sovereign would be credit-negative."

Rand starts the day at R14.08/$

The rand opened at R14.08/$ on Monday morning, it was the worst performing emerging market currency last week.

It lost as much as 3.4% ahgainst the US dollar, mainly due to developments at Eskom.

"The rand could claw back some losses this week if markets perceive Wednesday’s budget as positive," RMB Global Markets Research economists Mpho Tsebe and Elena Ilkova noted in a market update.

Also in a market update Botha, senior dealer at TreasuryONE, said that news of the resumption of trade talks between the US and China could be good news for the rand. 

"The news has helped Asia stocks trade in the green and the injection of positive sentiment for risky assets could spread into positive news for the rand.

"The rand is still under a bit of a dark cloud after being the worst performing emergency market currency in the past week. Much of the focus for the rand will be on the budget of Wednesday and it is quite feasible that the rand could trade within in tight ranges up until Wednesday with the market waiting for the budget.

"Expect a quiet lead up to the budget with the rand hovering around the R14.00 handle for most of the day."

Asian markets rally on growing trade deal hopes

Asian markets rallied with oil and high-yielding currencies Monday as investors grow increasingly confident that China and the United States will eventually hammer out a deal to end their long-running trade war.

While talks ended Friday in Beijing with no deal, negotiators shift to Washington this week with Donald Trump saying discussions were going "extremely well" and suggesting he could extend a March 1 truce deadline for an agreement to be reached.

The high-level discussions between the economic superpowers are expected to yield a memorandum of understanding ahead of a meeting between Trump and his Chinese counterpart Xi Jinping to finalise a pact.The upbeat mood in Asia follows a strong lead from Wall Street, while a bipartisan deal to avert another US government shutdown and the Federal Reserve's recent dovish tone on interest rates have also provided support.

The positive news comes at a crucial time as China's economy stutters and the global outlook looks less certain, with the US also showing signs of slowing. "With a weakening US economy, the motivation for both sides to get something agreed in the short term is quite high as they still debate the more structural issues that lurk in the background," Sunny Bangia, a global equities fund manager at Antipodes Partners, told Bloomberg TV.

Tokyo ended the morning session 1.8% higher, while Hong Kong added 1.7% and Shanghai rose 1.6% as data at the weekend showed a surge in new Chinese loans, indicating moves to kickstart growth. Sydney put on 0.4%, Singapore and Seoul each gained 0.9%, Taipei jumped 1% and Wellington edged 0.2% higher. - AFP