Daily Commentary - 05 June 2018

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

USD / ZAR 12.5917- EUR / ZAR 14.7265 - GBP / ZAR 16.7750 -

Economic Events:

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 appears to be more stable going into this week, following volatile trading towards the end of last week as a result of US President Donald Trump`s decision to broaden the tariff impositions. A combination of easing political tensions across Europe and an uptick in metal prices has since dampened risk aversion and boosted emerging market currencies. Today`s focus will be on the GDP figure for the quarter ended. According to a Reuters poll, a contraction of 0.5% is expected. Statistics South Africa will publish the GDP figures Today, and April manufacturing data on Thursday. “A survey on Friday showed conditions in South Africa’s manufacturing sector deteriorated slightly last month, suggesting the economy remained fragile under Ramaphosa, who replaced Jacob Zuma in February” (source: Reuters). Despite the local economic data, the rand is still expected to draw the majority of its direction from the US dollar. On the JSE, both the All Share and the Top 40 traded up 1.0%.

In the US market, the dollar index which tracks the greenback against a basket of six major currencies, dropped by 0.18%. The dollar gained momentum on the back of strong jobs data out of the US last week, but has since slowed as the threat of a global trade war still weighed on sentiment. Markets are expecting the US Federal Reserve to raise interest rates at its upcoming FOMC policy meeting due to commence on the 12th of June, which would see the dollar continuing on its rally at the expense of emerging market currencies.

In the European market, the common currency is slowly recovering as political tensions spurring from Italy eases. “The big spending plans of the two anti-establishment parties that make up the government have raised some concerns, but new Economy Minister Giovanni Tria has said that none of the parties want to leave the euro zone and neither does he” (source: Reuters). Markets will remain cautious as the political environment in the Eurozone remains highly uncertain.

In the UK market,  the “sterling fell on Monday as concerns about Brexit clouded the outlook for the currency after a brief rally encouraged by stronger-than-expected data on Britain’s construction sector. With time running out for Britain to secure a deal before exiting the European Union next March, diplomats are hoping an EU summit on June 28-29 could break the deadlock” (source: Reuters). Markets are also trying to anticipate the Bank of England`s next interest rate move, with expectations of monetary tightening being scaled back.

Our range for the day : R12.4500 - R 12.6500