The vulnerable rand continued to slide in afternoon trade on Friday following the release of international data that came short of expectations.
The rand surrendered gains after UK manufacturing PMI data was lower than expected this followed weak China and eurozone manufacturing PMI figures too. The UK measure for May fell to 45.9 versus 50.2 in April.
Locally the PMI was somewhat more positive but didnt sway the market. The seasonally adjusted PMI remained relatively stable at 53.6 index points in May from 53.7 in April pointing to contained activity in the sector.
Standard Bank warned earlier that the international data coupled with the sagging euro posed a potentially toxic mix for the rand.
The market is just following global trends. The PMI figures out of UK and other international data were not impressive and this has further contributed to the weakening of the rand. We are still waiting for the US non-farm payrolls which may further impact on the rand a local trader said.
At 11:40 the rand was bid at R8.6369 the dollar from Thursdays close of 8.5006. It was bid at R10.6421 to the euro from Thursdays close of R10.5131 and at R13.2097 against sterling from R13.0997 at Thursdays close. The euro was bid at US$1.2328 from Thursdays close of $1.2364.
The problems in Europe have been negatively impacting on emerging markets. Barclays Bank warned that the delayed response by the EU to the debt crisis was hurting emerging markets.
The outlook for the global economy has become more uncertain over the past month. In Europe the likelihood of a deeper recession has increased due to heightened risks of Greece leaving the euro area and because of renewed pressure on Spanish banks the bank said.
Meanwhile Dow Jones Newswires reported that the cost of protecting European government debt against default inched higher in early trading on Friday as investors continued to be unsettled by Spain's difficulties in refinancing its banking sector and gaining the trust of investors.
Spain's five-year credit default swaps - insurance-like contracts designed to pay out if creditors suffer losses - were two basis points wider from the close on Thursday at 598 basis points according to data-provider Markit. Spain's CDS spread is hovering around the psychological important level of 600 basis points having started the week some 50 basis points lower.
Spain is at the top of investors' worries as it struggles to find the funds to restructure its damaged banking sector.
Italian CDS also continues to widen as contagion fears abound. Italy's five-Year CDS was eight basis points wider at 565 basis points.
The Irish CDS spread ahead of the results of its referendum on the fiscal compact was slightly tighter at 715 basis points. The vote is widely expected to be positive.
Other sovereigns inched wider with Germany and France both two basis points wider at 104 and 219 basis points respectively.
Credit default swaps are derivatives that function like an insurance contract for debt. If a borrower defaults sellers compensate buyers.
Short bonds firm - ignore rand
South African bonds were firmer in midday trade on Friday with the short end especially well bid as local institutional buying absorbed foreign selling.
At 11:45 the benchmark R157 bond was trading at 6.350 percent from Thursdays close of 6.390 percent. The R207 was bid at 7.655 percent and offered at 7.625 percent from a previous close of 7.645 percent and the R186 was trading at 8.390 percent from its close of 8.375 percent.