Daily Commentary - 04 July 2017

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

- USD / ZAR 13.1866 - EUR / ZAR 14.9832 - GBP / ZAR 17.0666 -

Economic Events:

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:

The Rand yesterday continued in the direction that got started on Friday morning and although flows where rather light and the movement of our currency very gradual we did eventually by early evening break above the 13.20 level and by 17h40 reached a low for the day of 13.2500. Naturally there are local importers who have been getting rather nervous over the past few days, but we are still seeing a fair amount of off-shore traders buying our fragile currency too and this move lower has, as mentioned above, been very slow and steady and is still believed by most to be again driven by the closing of high risk position as went into Independence Day. Already this morning we have seen the 13.20 breaking and have seen a slight correct, with the softer Rand certainly attracting some buying interest.  

Yesterday did see other currencies also losing ground against the might greenback. The Euro moving lower towards 1.1355 from being nicely above the 1.1400 level and Pound Sterling also gave back a little, dropping down towards 1.2930 after starting the day slightly above 1.3025.

On the Data Front

Yesterday saw Global PMI figures coming out.  China’s PMI rose to 51.7 in June, from 51.2 previously, beating expectations of 51 points. The improvement in manufacturing activity was due to higher output levels, a rise in new orders and new export orders, imports, purchases and prices, and better global trade will likely keep activity upbeat. The Japanese PMI fell unexpectedly in June, to 52.4 index points from 53.1 previously. Despite the deterioration, this is the 10th consecutive month of expansion, led by output and new orders. However both subcomponents have fallen to the lowest since at least November 2016.

In Europe the Eurozone manufacturing PMI rose to the highest in 6 years, at 57.4 points, from 57 previously, better than consensus of 57.3. Most countries experienced at uptick in manufacturing activity, due to surging new orders, also prompted by better global trade and domestic demand. In the UK manufacturing PMI fell to 54.3 in June, from 56.3 previously, worse than consensus for no change. This was mainly due to sluggish local demand – this is expected to remain a key headwind to manufacturing activity and local growth.

Across the Atlantic in the U.S. their ISM manufacturing index rose to 57.8 in June, from 54.9 in May, beating consensus of 55.3. Production, new orders, backlogged orders, deliveries, employment and new export orders all rose modestly over the month, indicative of better demand for US goods amid better global trade and a weaker dollar. This is expected to persist over the medium term on the premise of better global growth and demand.

And in SA PMI indicator unsurprisingly continued to reflect deteriorating manufacturing activity – falling to 46.7 in June, from 51.5 previously. Most subcomponents deteriorated, including business activity, new orders and purchasing commitments. A slump in overall confidence levels in the economy will continue to hamper investment, growth, manufacturing activity and consumption. Even sentiment over expected business conditions in 6 months’ time deteriorated sharply.

As a synopsis Global manufacturing conditions appear mixed. However, indications of better trade activity and global demand may lift manufacturing and overall industrial activity in the months ahead. In SA, business conditions remain particularly testing and unlikely to ease in the coming months on the back of political uncertainty, possible further credit rating downgrades and growth disappointments. (Nedbank, Capital).

Markets of course will be thinner than usual with it being Independence Day and this may lead to moments of volatility. On the data front today there is very little with the only thing of any importance being possibly the Eurozone PPI numbers. The ANC conference is still continuing and again it might be sensible to keep an eye on the headlines, but again nothing is expected on the back of the conference with the market not picking up any grumbling do the rounds currently.

Our Range for the Day :-   13.1200  to  13.3000