Daily Commentary - 02 May 2018 | Merchant West

Daily Commentary - 02 May 2018

- USD / ZAR 12.2650 - EUR / ZAR 15.1129 - GBP / ZAR 17.1295 -

Economic Events:

02 May : EC GDP - US Federal Open Market Committee meeting

03 May : EC CPI & PPI - US Trade Balance

04 May : US Non-Farm Payrolls

Market Commentary:

Local Front:

South Africa's rand weakened against a strong greenback on Monday amid persistent risk-off sentiment for emerging markets ahead of the Federal Open Market Committee meeting which starts today. Stocks gained on the back of a weaker rand, with rand hedge shares registering the biggest gains. At 17h00 (on Monday), the rand traded at 1.01% weaker at 12.4575 per dollar, than its close on Friday, with sadly a lot more weakening to follow over yesterday’s Public Holiday. "The rand weakness is not an isolated move in the emerging markets, as the dollar was broadly bid and gained against other EM's. It's mainly due to the risk sentiment in EM's and the U.S. treasury market. Also markets will react to what the FED says about the monetary policy on Wednesday," said ETM market analyst Halen Bothma, with technical indicators show the rand fell more than 3% since 19th March & the rand sadly end April 4.5% weaker - its worst monthly performance since summer 2016.

The South African Revenue Service reported on Monday that South Africa's March trade balance swung to a 9.47 billion rand ($762 million) surplus in March from a revised deficit of 603 million rand in February. Bonds remained weak, with the yield on the benchmark paper due in 2026 up 0.015 basis points to 8.19%. The all share index rose 1.39% to 58,252 points while the benchmark top-40 index was up by 1.45% to 51,419 points. "The rand is pushing up all our heavily weighted stocks. The rand hedges like British American Tobacco, Richemont and dual listers stocks are the ones benefiting," said BP Bernstein equities trader Vasili Girasis. Mondi was one of the positive movers, rising 5.28% to 363.96 rand after it announced its intended acquisition of an Egyptian industrial bag-maker and intended expansion into the Middle East.


International Front:

The dollar held near a four-month high against a basket of major currencies this morning, buoyed by the outlook for a strong U.S. economy and rising yields amid signs of a slowdown elsewhere, especially in Europe. The dollar's index ticked down 0.1% in Asia after having gained 1% in the preceding two days. It rose to as high as 92.57 yesterday, its’ firmest since 10th Jan. The index rose above its 200-day moving average for the first time in a year, triggering a wave of short-covering.

While the Federal Reserve is widely expected to keep the benchmark interest rate on hold at its policy meeting this evening, it looks certain to raise borrowing costs next month, given signs of possible acceleration in the U.S. economy. The Institute for Supply Management (ISM) survey published yesterday showed U.S. factory activity slowed in April, but it highlighted shortages of skilled workers and rising costs, suggesting inflationary pressure is building. Data published last month showed the Fed's favourite gauge of consumer inflation had jumped in March. "We are seeing a roll-back of dollar selling since the start of the year. If the upcoming U.S. jobs data shows gains in wage rises, that would propel the dollar higher," said Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo.

Investors also think U.S. President Donald Trump's tax cuts and spending plans -- acting as additional stimulus at a time of already solid economic expansion -- could further fuel inflation and prompt a faster pace of rate rises. In contrast, expectations of rising rates are dwindling in Europe as recent economic figures suggest cooling momentum after stellar growth last year. The euro is hovering around 1.2020 against the greenback, near Tuesday's low of 1.1981, which was its lowest since mid-January.

International Data Front:

Despite the second straight monthly drop in the ISM index, manufacturing remains underpinned by a firming global economy as well as a weakening U.S. dollar, which is boosting the competitiveness of American-made goods on the global market. Stocks on Wall Street fell as investors worried about inflation. The dollar was trading higher against a basket of currencies while prices for U.S. Treasuries slipped. A separate report from the Commerce Department showed construction spending unexpectedly fell in March as a sharp decline in homebuilding and renovations led to the biggest drop in investment in private construction projects in more than seven years. Economists expected the construction data would subtract one-tenth of a percentage point from the government's 2.3% annualized growth rate estimate for first-quarter gross domestic product, which was published last Friday. “We expect residential construction spending to grow in 2018 on our thesis that while home building is being constrained by supply issues, the demographic demand for housing units exceeds supply," said John Ryding, chief economist at RDQ Economics in New York.

Our Range for the Day :    12.40  -  12.68