Daily Commentary - 03 July 2017

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

- USD / ZAR 13.1007 - EUR / ZAR 14.9142 - GBP / ZAR 17.0010 -

Economic Events:

03- July: EC Manufacturing PMI - SA Manufacturing PMI - US ISM Manufacturing - SA Naamsa Vehicle Sales

04-July: EZ PPI

05-July: SA Standard Bank SA PMI - EC Retails Sales - US Durable Goods Orders - US FOMC Meeting Minutes

06-July: SA SACCI Business Confidence - US ADP Employment Change ;Jobless Claims;Trade Balance

07-July: US Change in Nonfarm Payrolls ; Unemployment Rate

Market Commentary:

On Friday we did see the Rand giving up the gains it had made through the week. The week before we’d tested 13.12 and again on Friday saw the USD/ZAR slipping to this level and in fact late on Friday afternoon even had our currency paying a cent or two higher with us touching 13.14 before getting some off-shore investors climbing back in and close for the week in N.Y. at 13.0220.

This sell off in the Rand on Friday came as no real surprise and in fairness most EM currencies and high risk yields did get sold as investors looked to go into what was going to be a 4 day weekend reducing their risk portfolio to some extent. With tomorrow being Independence Day, everyone knows that when it comes down to trading out of the U.S. will be painfully quiet today as most decision will have left work early on Friday and are still enjoying margarita’s and matai’s at their summer homes, and hence why it made sense to be out Friday when you knew you would be watching things or active again until Wednesday.

We therefore expect a fairly quiet day today, which should slow down even further in the afternoon, but would warn that the risk most likely lies still to the top side, as liquidity may be a little thin and this could see some intra-day volatile. We however do expect that most of those who wanted to close out their position did already do so and hence expect what loses are felt today should be just as easily be recovered .

On the data Front :-

On Friday SA’s trade balance figures were released and we saw the surplus widen to R9.5 billion in May, from R4.9 billion in April, better than forecasts of R9.3 billion. Exports surged by 15.4% over the month, while imports rose by 11%, after contractions of 9.2% and 3.4% respectively, previously. Exports and imports rose across the different product categories, while exports to all regions rose modestly and imports from all regions apart from Africa surged.

On a cumulative basis, the YTD trade surplus stands at R19.5 billion, from a deficit of R13.3 billion during the same period last year. Better export activity will likely boost the trade balance further, while imports are highly depended on local demand which has remained anaemic this year. Exports for 2017 are up 6.1% on an annualised basis, while imports are down 1.3%. This trend is expected to persist over the medium term, but is still highly dependent on growth of and demand from our major trading partners (EU, Asia and the US). As a result, the current account deficit is expected to improve from 3.4% of GDP last year to 3% in 2017. (Nedbank, Capital).

Out of Europe we saw the Eurozone CPI eased to 1.3% y-o-y in June, from 1.4% previously, better than consensus of 1.2%. Food, alcohol, tobacco and energy prices eased, with only the prices of non-energy industrial goods and services rising in June. On the positive side, core CPI rose to 1.1% y-o-y in May, from 0.9% previously, and indicative of rising underlying inflation in the economy. However core inflation has been mainly boosted by higher services costs so the overall inflation outlook still remains subdued with inflation not reaching 2% over the next 3 years.

Very little on the data front today with figures of small to importance coming out of Europe and the U.K.  It is however important to mention that the ANC policy meeting started on Friday and will be continues through this week. We don’t expect much from a ”political noise” point of  view, but at the breathe we all know how inconsistent our ruling party can be at the best of times and would therefore advise you say on your toes.

Our Range for the Day :-   13.03   -   13.13