Daily Commentary - 10 July 2018

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

USD / ZAR 13.3880 - EUR / ZAR 15.7194 - GBP / ZAR 17.7926 -

Economic Events:

09 July: No data of real importance

10 July : SA SACCI Business Confidence

11 July: US MBA Mortgage Applications ;PPI Final Demand

12 July: GE CPI - EC Industrial Production - SA Mining Production ;Manufacturing Production - US Initial Jobless Claims ;CPI

13 July : US University of Michigan Sentiment ; FED releases Monetary policy report to congress

Market Commentary:

The Rand started week 2 of July with local Importers feeling a little more up-beat. Friday’s U.S. Non-Farm figures had been exactly what the doctor ordered, with the usual mixed results, but with their unemployment numbers having climbed from 3.8% by a full 0.2% to the 4% mark and with the weekly wage numbers coming down, markets largely ignored that the payroll numbers were up to 213K, beating the expectation of 195K. The mildly “risk on” climate that had got a start off the FED Minutes Wednesday night got the extra boost it needed and we were all smiles as the weekend started and most certainly still smiling as we walked in yesterday.

For the first time since the 26th June the Rand was trading in the 13.40’s levels, but unlike the 26th June this time around we were expecting to hold onto the overnight gains and were indeed hoping to see even further strength, with rand bulls climbing out of hibernation in there drowns, calling for the 13.40 level to break ,they certainly didn’t need to wait long. By 11h45 we had shot through the key 13.41 resistance level to test and turn at 13.3075. (A price last shown on the 14th June and that was when we were still climbing sharply after breaking 13.00) !

The rand constructive gains yesterday were halted to a large extent due to the political uncertainty within Turkey, who continues to experience civil unrest, foreign policy tensions and ongoing threats from terrorist groups. Furthermore the UK political uncertainty brought about under the resignation from Theresa May’s cabinet didn’t help either. A “risk on” climate for the EM Currencies is best fueled under an environment of stability and with this added uncertainty in terms of Brexit and the UK, as a whole we saw a clear move back into the Dollar yesterday afternoon.  The GBP/USD fell from 1.3345 to 1.3188, the EUR/USD from 1.1788 to 1.1788 and the knock on effect to the rand saw us move from USD/ZAR 13.31 to close in N.Y. around 13.4250.

Things started in the UK yesterday with the resignation of the Brexit secretary Mr. David Davis, but this didn’t effectively shock the markets. It was the resignation of Boris Johnson that then subsequently followed that caused all the upheaval.

The EU’s highest-ranking officials have expressed frustration as to the meltdown in Theresa May’s cabinet, with both her foreign secretary and chief Brexit negotiator resigned.  Speaking at a press event yesterday afternoon, European Council president Donald Tusk said that it was unfortunate that the whole, “idea of Brexit has not left together with David Davis”. He then added , “The mess caused by Brexit is the biggest problem in the history of EU-UK relations and it is still very far from being resolved, with or without Mr Davis.”

Market today however seem to have steadied somewhat and we hope that the opportunity given to the EM Market can continue, as we wait patiently for the U.S. CPI data on Thursday and the FED release of its’ Monetary Policy Report to congress on Friday.

Our Range for the Day :    13.31    -     13.50