DAILY COMMENTARY - 10 MAY 2019

Merchant West Advisory Services

Merchant West Capital Markets

USD/ZAR 14.2443 | EUR/ZAR 15.9949 | GBP/ZAR 18.5399

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JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

Market Data:

10 May - GB UK GDP, Manufacturing Prod & Trade Balance | US CPI Data

Market Commentary:

In a week when most of EM currencies are in the red – ZAR is the outperformer holding onto gains of close to 1% as we touched lows of 14.30. We currently trade 14.33 with the election results being counted in the background as we have breached the three-quarter mark. The markets seem to be comfortable with the ANC’s current 57% margin versus just under 22% for the main opposition and followed by the EFF at just over 10% at this stage. We continue to monitor these results closely and can expect official results by tomorrow as there are audit measures that need to take place before any announcements can take place. Further abroad – the U.S. tariffs have kicked in on Chinese goods and expect these developments heat up in the near term at least which will keep any ZAR rallies honest in the broader EM context. Expect to see another choppy session in a largely range bound day (BNP Paribas).                     

U.S. stock futures fell and Asian shares held onto earlier-pared gains on Friday after U.S. President Donald Trump’s tariff hike on $200 billion of Chinese goods took effect, raising tensions between the world’s two biggest economies despite ongoing talks. E-mini futures for U.S. S&P500 slipped after the higher tariffs kicked in, and were last down 0.6% in choppy trade. Chinese shares, even more volatile, dropped sharply when the tariffs took effect but then recovered, with the Shanghai composite index last 1.9 percent higher. MSCI’s broadest index of Asia-Pacific shares outside Japan, which dropped more than 1 percent early Friday, remained where they were when tariff increase kicked in, up 0.3%. Japan’s Nikkei was off 0.3 percent. European stock futures point to gain of 0.5-0.6 percent in European stocks, which closed on Thursday before Trump’s comments about receiving a “beautiful” letter from Chinese President Xi Jinping. That stoked some optimism, helping U.S. shares cut losses on Thursday. With no action taken by the Trump administration to reverse the increase the duty rate to 25 percent from the previous 10%, investors worried about further escalation in the trade war that has dogged the global economy for more than a year (Reuters.com).

Rising geopolitical tensions are not helping. North Korea fired what appeared to be two short-range missiles on Thursday in its second such test in less than a week and the United States said it had seized a North Korean cargo ship. On Iran, Trump said he could not rule out a military confrontation after Tehran relaxed restrictions on its nuclear program in response to U.S. sanctions imposed following Trump’s withdrawal of the United States from the accord with a year ago. The 10-year U.S. Treasuries yield stood at 2.449 percent near its lowest levels since late March. It stood just about two basis points above the three-month bill yields, which stood at 2.424 percent. In the currency market, the yen is favoured, with the dollar changing hands at 109.65 yen, having hit a three-month low of 109.47 on Thursday. The euro firmed slightly to $1.1226 while the Chinese yuan perked at 6.837 per dollar having hit a four-month low of 6.8638 to the dollar the previous day. MSCI’s emerging market currency index also tumbled to a four-month low on Thursday. Brent was down 0.1% to $70.30 a barrel while U.S. West Texas Intermediate crude fell 0.1% to $61.67. Gold ticked up 0.2 percent to $1,286.3 per ounce (Reuters.com).​

Range for the day: USD/ZAR 14.20 – 14.50