Daily Commentary - 07 June 2018

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

USD / ZAR 12.7349- EUR / ZAR 15.0673 - GBP / ZAR 17.1433 -

Economic Events:

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

08 June: GE Trade Balance

Market Commentary:

After a relatively stable start to the week, the rand lost significant ground following GBP data released by Statistics South Africa on Tuesday that showed a 2.2% contraction in the local economy over the first quarter. The rand has since retraced some of its losses on the back of a stronger euro and weaker US dollar, despite business confidence having fallen over four consecutive months. The market appears to be less optimistic and more divided on where the rand will go from here, and will closely follow local manufacturing production data due to be released today. According to a Reuters poll of economists, expectations are for a 1% year-on-year increase. “The rand is expected to weather the emerging markets dollar storm better than its peers over the next 12 months due to attractive interest rate returns, despite a weak economic start to 2018, a Reuters poll found” (source: Moneyweb).

In the US market, the dollar continues to hover around the top of its recent rally. Despite stronger than expected jobs and wage data released last Friday that increased the likelihood of a further two interest rate hikes for the year, markets remain cautious as the upcoming G7 and US-North Korea summits pose significant event risk.

In the European market,  the euro appears to have recovered from its prolonged slump and continues to hold its ground following comments from the European Central Bank. “The central bank’s chief economist Peter Praet, a close ally of President Mario Draghi, said the ECB would debate next week whether to end bond purchases later this year” (source: Reuters). If inflation data permits the decision, the ECB will begin to unwind their 30 billion euro purchase program that was instated during the sovereign debt crisis.

In the UK market, the pound strengthened on signs of economic recovery, but is now trading mostly range-bound as Brexit concerns again resurface. “Diplomats are hoping an EU summit on June 28-29 can break a deadlock over the terms of Britain’s divorce from the bloc, with time running out before Britain formally leaves in 2019. But with major sticking points over the Northern Irish land border with the Republic of Ireland and over a future agreement for financial services, some British officials have suggested the outlines of a deal will not be announced until later in the year” (source: Reuters).

Our range for the day : R 12.6000 - R 12.8000