Daily Commentary - 04 June 2018

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

USD / ZAR 12.5990- EUR / ZAR 14.7326 - GBP / ZAR 16.8282 -

Economic Events:

04 June : EC PPI Data - US Durable Goods Orders

05 June: SA Standard Bank PMI ; GDP Data  - EC Services PMI ;Retail Sale - US PMI Data

06 June : US MBA Mortgage Applications ;Trade Balance

07 June : EC GDP - SA Manufacturing Production - US Initial Jobless Claims

08 June: GE Trade Balance

Market Commentary:

The rand regained some traction at the end of last week, following the earlier sell-off induced by US President Donald Trump`s decision to broaden the tariff impositions. Despite the threat of a global trade war, local factors also contributed to the downward pressure on the rand. South Africa`s trade balance missed market expectations after moving from a surplus to a deficit in the space of a year, and the Purchasing Managers Index (PMI), an indicator of economic health for manufacturing and service sectors, showed a slight decline. “The ‘Ramaphoria’ effect is waning and dark clouds in the form of trade protectionism have started to form,” NKC Research economists said in a note, referring to investor optimism surrounding Ramaphosa’s election as president (source: Reuters). On the JSE, the Top-40 traded up 2.2% and the All-Share up 2%.

In the US market, geopolitical tensions and the threat of a global trade war have taken the backseat after stronger than expected US jobs data sent the dollar higher. Given the combined growth in jobs and wages, the probability of an interest rate hike in the upcoming Federal Reserve meeting has become almost certain. “The jobs report was strong but other recent U.S. data also point to strong fundamentals, helping the dollar recover losses suffered from risk aversion. Uncertainty over the U.S.-North Korea summit next week is still likely to cap the dollar’s upside,” said Shin Kadota, senior strategist at Barclays in Tokyo (source: Reuters).

In the European market, the euro is slowly retracing its previous losses, but political concerns stemming from Italy have kept the euro near its current low. “The euro edged higher on Friday, breaking a six-week losing streak, supported by a drop in Italian bond yields after a revived coalition deal between two anti-establishment parties pulled the country back from snap elections”. “A governing coalition comprising two parties hostile to the euro was installed in Italy on Friday, calming markets spooked by the possibility of a new election that might have become a referendum on quitting the single currency”. (source: Reuters)

In the UK market, the pound ended the week stronger after data showed an increase in manufacturing growth. Slowing economic conditions in the UK have forced the Bank of England to move away from market expectations for interest rates, resulting in the pounds dramatic depreciation. With the exception of Brexit politics, international pressures are expected to weigh on the pound in the short-term.

Our range for the day : R12.4500 - R12.7000