Daily Commentary -08 June 2018

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

USD / ZAR 13.2626- EUR / ZAR 15.5999 - GBP / ZAR 17.7746 -

Economic Events:

08 June: GE Trade Balance

Market Commentary:

Spill-over effects from Tuesday’s GDP numbers as well as investors fleeing emerging markets, resulted in the rand hitting five month lows on Thursday afternoon. It was 2.04% weaker at 16h00 local time as New York traders offloaded their risk holdings. The Brazilian Real slumped to two year lows on worries over the country’s fiscal outlook and political future. Turkey’s central bank also raised rates for the second time in weeks. Both of these added to the rand`s slip. According to Rand Merchant Bank’s fixed-income specialist, Michelle Wohlberg, there has been some panic selling past the 12.85 triggering a couple of stops and now it’s momentum trading.  Tuesday’s GDP numbers has raised concern about the economy in the long term. Any future GDP releases will be scrutinized and therefore has the potential to be market moving. This morning we are trading above the 13.00 psychological level. In contradiction to all of this, Standard Chartered analysts are more rand positive over the long term and believe that it could trade as strong as 11.80 by the end of 2018.

The USD is also trading near three weak lows this morning as U.S Treasury yields fell sharply and the EURO recovery remained intact as expectations that the European Central Bank will begin unwinding its stimulus programme when it has its policy meeting on June 14. Concerns about next week’s political and policy fixtures are also weighing on the greenback.  The Fed holds its two day meeting between 12 & 13 June, where it is widely expected to raise interest rates. Markets await to see whether they will hint if a total of four hikes is imminent in 2018. Donald Trump and North Korea’s leader, Kim Jong Un meet in Singapore on June 12 with the main issue being the abandonment of Korea’s nuclear weapons programme which threatens the United States.

Sterling gave up some of its gains yesterday as concerns about BREXIT negotiations weighed on the currency. According to headlines, British Prime Minister Theresa May was struggling to get her cabinet to agree on a plan to prevent a hard border on Ireland if BREXIT talks fail. The currency fell as much as 0.3% on the day to 1.3371.

Clearly there are a number of upcoming events which financial markets will have to digest with the Group Seven Summit scheduled in Charlevoix, Quebec, this weekend. The big issue here would be the widening divide over trade between U.S President Donald Trump and the remaining six members. Trump last week imposed tariffs on steel and aluminium imports from Canada, Mexico and the European Union.

Expected range : 12.95 – 13.20