Daily Commentary - 08 May 2018

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

USD / ZAR 12.5253 - EUR / ZAR 14.9296 - GBP / ZAR 16.9487 -

Economic Events:

08 May : CH Trade Balance

09 May : SA SACCI Business Confidence - US MBA Mortgage Application ; PPI

10 May : CH CPI  - SA Mining Production ; Manufacturing Production - UK BOE rate announcement - US Jobless Claims  ;CPI

11 May : US University of Michigan Sentiment

Market Commentary:

No real directional movement was seen yesterday in a fairly quiet trading session. The rand opened today at 12.54 after seeing a high of 12.59 and a low of 12.48 yesterday.

Emerging Markets are still vulnerable to sell-offs in current conditions as oil remains above $75 per barrel, a strong U.S. Dollar and U.S. Treasuries around the 3% mark after EM currencies experienced its worst week since 2016. Investors have unwound most of their short U.S. Dollar positions for the first time in a year which points to a USD rally that may be losing some steam. A key point to watch will be to see if pressures from the Asian trade spill into ZAR for the day.( BNP)

Portfolio outflow figures were thus far not indicating any sort of mass liquidation taking place, the latest JSE reading is much more concerning with a surge in bond outflows to R4.87bn, the sharpest since Jan. Equity inflows have also softened significantly, taking combined net inflows to their lowest level since Jan as well at just R490mn so far this month.This high frequency data is very volatile and doesn’t capture the full breadth of market participants so should be taken with a grain of salt, but is nonetheless a red flag for a sharper squeeze on embedded foreign longs in ZA assets. Overall though the cumulative combined net inflow for the year is still very robust at over R56bn, the highest since the peak QE days of 2012.

Local data is light on releases until later in the week when we get the latest SACCI business confidence reading and the mining and manufacturing production figures for Mar. The former gauge declined off its cycle highs notched in the aftermath of President Zuma’s resignation and will be eyed keenly to get a sense of just how much Ramaphoria is cooling off.

Internationally, US President Donald Trump will be making his decision regarding the nuclear deal, this should provide the country relief from sanctions for limiting its uranium enrichment capacity .If President Trump decides to impose sanctions on Iran; it would deal a blow to oil supplies and put upward pressure on oil prices.

Fed officials, Raphael Bostic and Robert Kaplan have said that the Fed can tolerate an overshoot in its 2% inflation target and current price pressures do not warrant a deviation from the current interest rate path. This comes as energy costs trend higher, putting upward pressure on inflation.

With little data out today, the focus will be on Trump’s decision regarding Iran’s nuclear deal. Locally, reserves data is out at 8:00, with mining and manufacturing data out on Thursday, which will confirm a 1Q18 GDP slowdown. ( RMB )

Our range for the day : R 12.4500 – R12.7500