Daily Commentary - 11 June 2018

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

USD / ZAR 13.0181 - EUR / ZAR 15.3808 - GBP / ZAR 17.4944 -

Economic Events:

11 June : No data of real importance

12 June: Germany ZEW Survey Expectations - US CPI Data

13 June : SA BER Business Confidence ; Retail Sales - EC Industrial Production - US PPI Data ;FOMC Rate Announcement

14 June : SA Mining Production - EC ECB Rate Announcement - US Retail Sales ; Jobless Claims

15 June: EC CPI Data - US Empire Manufacturing ;TIC flows

Market Commentary:

Local currency front:

The South African government is concerned by the rand's plunge to its lowest this year and will step up a "defence mechanism", Finance Minister Nhlanhla Nene said, but he fell short of calling the currency's dip a crisis. The rand dropped to 13.2875 against the dollar on Friday, its weakest since Dec. 18, Thomson Reuters data showed, as the country's economy and slowed and global investors shied away from riskier assets. "Call it very challenging times. It then depends when you begin to call it a crisis," Nene told the Sunday Times. “But these are very challenging times, and it's for this reason that we can't be complacent about it. We actually just need to step up our defence mechanism." He did not say what measures South Africa could take.

South Africa's rand suffered last week when data showed the economy shrank by 2.2 percent in the first quarter of 2018, with the most significant falls in agriculture, manufacturing and mining . At the same time, risk appetite among investors has eroded on speculation Europe's massive monetary stimulus is nearing an end, compounded by uncertainty over trade relations before a meeting of G7 leaders. The rand had rallied when Cyril Ramaphosa seemed set to be elected leader of the ruling African National Congress in December. His election as state President in February, days after Jacob Zuma was forced out as leader by the ruling party, gave the currency even further momentum.Ramaphosa pledged to clean up governance, deal with high unemployment and improve basic services, igniting a wave of optimism. But the recent poor economic data has eroded some of the enthusiasm in Africa's most industrialised economy.

International front:

U.S. President Donald Trump fired off a volley of tweets on Monday venting anger on NATO allies, the European Union and Canadian Prime Minister Justin Trudeau in the wake of a divisive G7 meeting over the weekend. Having left the Group of Seven summit in Canada early, Trump's announcement that he was backing out of the joint communique torpedoed what appeared to be a fragile consensus on the trade dispute between Washington and its top allies. "Fair trade is now to be called fool trade if it is not reciprocal," said Trump, who flew from Canada to Singapore for a meeting with North Korean leader Kim Jong Un."Sorry, we cannot let our friends, or enemies, take advantage of us on trade anymore. We must put the American worker first!"

The communique, which had appeared to have papered over the cracks that surfaced so uncharacteristically at the G7, said the leaders of the United States, Canada, Britain, France, Italy, Germany and Japan were agreed on the need for "free, fair, and mutually beneficial trade" and the importance of fighting protectionism. “We strive to reduce tariff barriers, non-tariff barriers and subsidies," the statement said, which came despite Washington appearing intent on taking more punitive steps on trade. It is unclear if Trump's focus on getting tough with trade partners, and solving the North Korean nuclear issue will have some influence on voters in the mid-term congressional elections in November.

"Not fair to the people of America! $800 billion trade deficit," he said. "Why should I, as president of the United State, allow countries to continue to make massive trade surpluses, as they have for decades, while our farmers, workers & taxpayers have such a big and unfair price to pay? “The White House did not immediately respond to a request for comment on why Trump had focused his tweets on Canada and the EU over trade disputes and on NATO partners over defense costs and not on his talks with Kim set for Tuesday.

Asked whether allies had any reason to worry about Trump’s commitment to any deal he reaches with North Korea following his abrupt withdrawal from the G7 communique, one U.S. official appeared to brush aside the notion, saying other countries have got used to how the president operates internationally.

Our range for the day : R 12.9000 – R 13.15000