Daily Commentary - 01 June 2018

Contact Merchant West Capital Markets on: (+2711) 305-9500 or treasury@merchantwest.co.za

USD / ZAR 12.6598 - EUR / ZAR 14.7947 - GBP / ZAR 16.8289 -

Economic Events:

1 June : EC Eurozone Manufacturing PMI - SA Manufacturing PMI - US Change in Nonfarm Payrolls ;ISM Manufacturing

Market Commentary:

Yesterday saw the Rand coming under strain again, with the day before being the complete opposite and true to the performance of May, the yo-yo effect on our fragile currency has been the only reliable factor. But with the Global uncertainty right now it’s of course very difficult to know where it might be going next and by how far.  We opened yesterday around $/R 12.52, strengthened initially down to 12.4550, but that was short lived, by 10 o’clock we started climbing and our Rand bulls really had a terrible day, losing a lot of money. We climbed to $/R 12.6850 by the close (local time) only to then push even higher in the overnight testing 12.7350 as a top and closing in N.Y. at 12.7050.

And if the Rand bulls lost cash if getting closed out in the overnight against the $/R, then they at least had one consolation in that the €/R & £/$ bulls lost even more. From the lows early yesterday morning of €/R 16.60 to the close at 16.88 & on the Sterling, £/$ 14.57 to 14.85. That’s a 28c move on both these currency pairs, with both these Majors holding their ground reasonable well to the might Dollar. Yesterday was sadly a day that saw the EM Currencies coming under stain, with the Rand by far one of the worst performers.

The SA Trade balance data that was released yesterday was somewhat disappointing. Empirical data shows that SA tends to post surpluses in weak growth environments and deficits when the economy is growing more robustly. The domestic GDP growth cycle tends to be a big swing factor in the trade account by virtue of the amplitude of SA's business cycle compared to the global growth cycle. Whilst it may be a little too soon to turn overly pessimistic on the trade account given how weak the money supply and private sector credit extension growth rates are, there is no question that the trade account dynamics will deteriorate through the course of 2018 should SA's growth rate continue to improve in line with the confidence indices that have responded to Ramaphosa's time in power. (ETM).

We certainly do still need to keep our eyes on the Market data coming out today as well, with the U.S. change in Non-Farm Payrolls coming out this afternoon. Please to see that the Rand is recovering off yesterday aggressive push to the up-side and do believe, as has been the order of the day throughout this month, eyes need to firmly stay focused on developments out of the U.S. where now new trade war fears are evolving in regards to steel and aluminium tariffs against the EU, Canada and Mexico. Hopefully this it again just “talk” and does not turn into “action”.

Our Range for the Day :-      12.52    -     12.72