Daily Commentary - 05 July 2018

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

USD / ZAR 13.6663 - EUR / ZAR 15.9780 - GBP / ZAR 18.0931 -

Economic Events:

05 July: UK Initial Jobless Claims ; PMI Data

06 July : US Non-Farm Payrolls ;Average earnings ; Trade Data

Market Commentary:

Local currency front:

South Africa's rand weakened on Wednesday, giving up earlier gains despite the dollar treading water, amid global trade tensions before a U.S. deadline to impose tariffs on Chinese imports. At 17h15, the rand traded at 13.7350 per dollar, 0.46 percent weaker than its close on Tuesday. Worried about the impact of a full scale trade war, investors have been nervous about the Friday deadline when Washington is set to impose tariffs on $34 billion worth of goods from China. Beijing has vowed to match any moves with tariffs on U.S. products. “With trade tensions escalating by the day, market caution is set to remain a recurring theme moving forward," FXTM research analyst Lumen Otunuga said. "Emerging market currencies are likely to be caught in the crossfire of the escalating tensions with the rand falling into the category."

In fixed income, the yield for the benchmark paper R186 fell 9 basis points to 8.75 percent. On the bourse, the Top-40 index was up 0.17 percent to 51,374 points and the broader All-Share index rose 0.19 percent to 57,600.

International front:

The United States is "opening fire" on the world with its threatened tariffs, the Chinese government warned on Thursday, saying Beijing will respond the instant U.S. measures go into effect as the two locked horns in a bitter trade war. The Trump administration's tariffs on $34 billion of Chinese imports are due to go into effect at 12.01 am eastern time on Friday (0401 GMT Friday), which is just after midday on Friday Beijing time.

U.S. President Donald Trump has threatened to escalate the trade conflict with tariffs on as much as a total of $450 billion in Chinese goods if Beijing retaliates, with the row roiling financial markets including stocks, currencies and global trade of commodities from soy beans to coal. China has said it will not "fire the first shot", but its customs agency made clear on Thursday that Chinese tariffs on U.S. goods will take effect immediately after Washington's duties on Chinese goods kick in.

Speaking at a weekly news conference, Chinese Commerce Ministry spokesman Gao Feng warned the proposed U.S. tariffs would hit international supply chains, including foreign companies in the world's second-largest economy. "If the U.S. implements tariffs, they will actually be adding tariffs on companies from all countries, including Chinese and U.S. companies," Gao said. "U.S. measures are essentially attacking global supply and value chains. To put it simply, the U.S. is opening fire on the entire world, including itself," he said. "China will not bow down in the face of threats and blackmail and will not falter from its determination to defend free trade and the multilateral system."

Global Risks:

The World Trade Organization warned on Wednesday that trade barriers being erected by major economies could jeopardise the global economic recovery, with their effects already starting to show. European officials have told Reuters that China has put pressure on the European Union to issue a strong joint statement against U.S. President Donald Trump's trade policies, but so far they have insisted on not taking sides. Chinese stocks slipped on Thursday and the yuan gave back some of its recent gains against the dollar as a targeted cut of reserve requirements for banks took effect amid heightened the trade tensions. An outright trade war with the United States could hit China's export machine, with recent data pointing to fatigue as credit expansion slowed and domestic demand looked to be softening. China's second-quarter economic growth is expected to have slowed slightly from the previous quarter, a Reuters poll showed, as policymakers seek to mitigate the impact from a de-risking drive and the trade dispute with the United States.

Our Range for the day: R13.5500 - R13.8000