Daily Commentary - 07 August 2018

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

USD / ZAR 13.3663 - EUR / ZAR 15.4744 - GBP / ZAR 17.3189 -

Economic Events:

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:

What appeared to be a move towards the USD/ZAR 13.00 handle over recent weeks was once again drawn to a halt. The rand has continuously been losing ground since the start of the trading week as an escalating tariff dispute forced markets into a heightened state of risk aversion, and investors towards safer currencies such as the US dollar. The rand, along with its emerging market peers, has been no stranger to high levels of volatility arising from the threat of a global trade war. The back and forth between the US and China has caused large swings in investor sentiment. The uncertain political landscape locally also created a compounding effect with the rand still reacting to the land expropriation announcement, and investors contemplating the future of South African property rights and its implications for sustainable agriculture and economic growth. Despite these domestic factors, the rand still appears to draw the majority of its direction from foreign headlines, with the trade war likely to be a persistent theme that could lead to extended periods of heightened volatility. On the JSE, the Top 40 traded down 0.40% and the All Share down 0.45%.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, remained relatively stable after strengthening slightly. With the trade dispute between the US and China consistently escalating, it still remains largely unclear as to how it will play out and what the ultimate effect of the newly imposed trade tariffs will be on the different economies. However, the dollar has thus far emerged largely unscathed and has gained almost ‘safe haven’ status. “Some analysts see trade tensions supporting the dollar as the United States economy is better placed to handle protectionism than emerging markets, and as tariffs may narrow the U.S. trade deficit” (source: Reuters).

In the European markets, the euro is currently trading at a five-week low, “weighed down by worries that Italy could ramp up spending and challenge European Union budget regulations and by a drop in June German industrial orders” (source: Reuters). 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. The pound also remains fragile as fears of a potential failure to reach a Brexit deal in time start to realise. “Comments from officials about a no-deal Brexit stoked fears Britain would crash out of the EU next year without securing a trade agreement” (source: Reuters). Markets will also monitor UK GDP and manufacturing figures due later this week.

Our range for the day : R13.2800 - R13.4500