Daily Commentary - 11 July 2018 | Merchant West

Daily Commentary - 11 July 2018

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

USD / ZAR 13.4026 - EUR / ZAR 15.7257 - GBP / ZAR 17.7974 -

Economic Events:

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:

Global equity stocks trended higher yesterday following an optimistic earnings report, while most EM currencies continued to benefit from a weaker US dollar . The Dow and Nikkei gained 0.6% and 0.7%, while the JSE ALSI bucked the trend to close 0.3% weaker. The rand closed at 13.33, its strongest level since mid-June. Markets are likely to pare gains as the trade war between the US and China intensifies.

The rand is weaker again this morning, currently at R13.40/$. Foreigners were net buyers of SA bonds, which also aided the rand. Investors are gradually returning to emerging markets. Emerging markets tend to bear the brunt during bouts of risk aversion. The yield curve flattened marginally last week but remains rather steep. Our 8.3% forecast for the R186 bond yield by year-end implies a reasonable real yield in a global context.

We keep an eye on UK politics and Brexit after the shock resignation of two prominent Brexiteer politicians. The pound has been suffering due to the ongoing Brexit fall-out. (Source: RMB)

Locally

SAA CEO Vuyani Jarana has indicated that the government and airline management have agreed to start the process of looking for an equity partner. However, details of the process or the size of the equity stake are not yet available. If successful, this would lift the burden on the state for further funding of the ailing SOC.

The monthly SACCI business confidence index fell for a fifth straight month in June to 93.7 from a January peak of 99.7. This trend seen since the start of the year demonstrates the lack of confidence in investing in the local economy as a result of policies such as land reform, the mining charter and more recently the NHI, which has injected further uncertainty into the mix.

This view is reinforced by faltering corporate loan growth, which suggests that changes on the political front have failed to entice companies to ramp up investment.

The trend of falling business confidence is likely to be constant due to domestic factors such as weak economic growth, while the volatility in the rand adds another layer of uncertainty for private sector businesses.

Against the backdrop of renewed weakening in business sentiment, it is expected that economic activity has remained stagnant in recent months and this has generated some renewed concerns surrounding the fiscal trajectory.

Wage negotiations were deadlocked into the night at Eskom, with the utility now offering employees a 7.5% increase for this year and 6.5% for next year. Unions are still demanding an 8% increase for 2018 but have reduced their housing allowance request to R500 from R1, 000 a month, which Eskom still maintains it cannot afford.( Source : Investec )

We don’t have much data coming out today, the focus will remain on trade policy and US corporate earnings report.

Our range for today: R 13.3000 – R13.6300