Stocks soar to start the week; ZAR gains

Summary:

• New record highs for US stocks

• DE30 smashes through 13000 level

• ECB’s Lagarde set for German address

• South African Rand biggest FX gainer

Stocks have picked up this week where they left off the last with strong gains seen across the board. There’s a sea of green across European bourses on the cash close whilst US indices have not only opened at record highs but also all-time peaks with all 3 of the major indices across the pond trading at levels hitherto unseen. 

The gains can be attributed in part to more hopes on the trade front with Commerce Secretary Wilbur Ross talking up the prospects of completing a first phase agreement with China this month. There was a bit of a blip in markets last week after China sounded fairly downbeat on the trade front but this dip was bought keenly and the combination of a less hawkish than feared Fed and a goldilocks NFP report boosted sentiment further.

DE30 is up more than 1% on Monday and over 25% so far this year as investors hope that US will not introduce tariffs on imported cars. Traders are looking forward to the first speech of the new ECB president today (7:30pm GMT) and to more news on US-China phase1 trade deal. Technically, the next resistance for DE30 is 13200.

A potentially key event for European stocks and the single currency is scheduled for this evening with new ECB president Christine Lagarde set to speak in Berlin in what will no doubt be a politically charged address given the recent resumption of additional stimulus measures from the central bank. The tone here will be key and any suggestions of pressure towards fiscal stimulus to accompany the current monetary policy will likely be seized upon.  

South Africa managed to maintain its last investment-grade credit rating on Friday, after Moody’s refrained from downgrading the country despite a bleak mid-term budget statement delivered last week. It means that Moody’s still rates the African country at ‘Baa3’, however, the agency decided to slash the outlook to negative signalling that a downgrade could be delivered during the next 18 months. In its statement it wrote “The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level.” Its new outlook reflects mounting concerns that the government will fail to find “the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth”. USDZAR is higher by 0.8% on the day at the time of writing.