Daily Commentary- 06 August 2018

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

USD / ZAR 13.3596 - EUR / ZAR 15.4535 - GBP / ZAR 17.3342 -

Economic Events:

06 August: GE Markit Germany Construction PMI

07 August: GE Trade Balance - SA Gross Reserves ; Manufacturing Product - US Consumer Credit

08 August: SA SACC Business Confidence - US MBA Mortgage Applications ;Fed's Barkin Speaks in Virginia

09 August: CH PPI - US Initial Jobless Claims ;PPI Final Demand

10 August  : UK Trade Balance ;GDP ;CPI

Market Commentary:

In what many consider to be a critical time for the sluggish South African economy, the political landscape has not proved to be of much support. President Cyril Ramaphosa announced last week that the ruling ANC party will forge ahead with their plans to amend the constitution to facilitate land expropriation without compensation, which will inevitably impact economic growth, agriculture and food security. However, the effect on the rand appeared to be short-lived as international factors stemming from the US remained the dominant theme in the local market. As the trade war continues to escalate, the rand and other emerging market currencies continue to react on US dollar movements as risk sentiment wavers. Markets will pay close attention to any new developments concerning the planned land expropriation, and the future consequences for South African property rights.

In the US market, the Federal Reserve kept interest rates unchanged at its most recent Federal Open Market Committee meeting, reassuring markets of the strengthening US economy. A lower unemployment rate in the US also contributed to a stronger and more stable dollar. However, the outcome on the escalating trade war between the US and China remains unclear, dampening investor sentiment and risk appetite. The People`s Bank of China has also initiated measures to support their local currency. According to an article published by MarketPulse, “The introduction of new measures effectively makes it more expensive to short the yuan, which was one of the popular trades to play out the escalating trade tariff war between the US and China”. “The trade dispute remains a live issue for markets with China proposing tariffs on $60 billion worth of U.S. goods on Friday, while a senior Chinese diplomat cast doubt on prospects of talks with Washington to resolve the bitter trade conflict” (source: Reuters). Despite these developments, speculators maintain their favourable views on the future of the greenback. “Speculators were net long dollars for a seventh straight week, after being short for 48 consecutive weeks” (source: Reuters).

In the European markets, the Bank of England proceeded to hike interest rates last week for the first time in nearly a decade, despite a slowing economy. The pound remains fragile following remarks by Mark Carney, Governor of the BoE, that “Britain faced an “uncomfortably high” risk of a “no deal” Brexit” (source: Reuters). Sentiment surrounding the pound is growing increasingly bearish as the Brexit deadline approaches. The euro has also lost ground and is trading near a multi-week low. Markets will focus on the European Central Bank`s Economic Bulletin due on Thursday this week, which should provide further insight into the economic state of the Eurozone.

Our range for the day : R 13:2500 - R 13:5000