Daily Commentary- 11 May 2018

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

USD / ZAR 12.3483 - EUR / ZAR 14.7082 - GBP / ZAR 16.7053 -

Economic Events:

11 May : US University of Michigan Sentiment

Market Commentary:

The USD/ZAR opened today at 12.30 after climbing close to 2% yesterday, the 12.30 level broke yesterday and we saw 12.27 in the late evening trade. The main driver for the movement was the USD pullback present across the majors with the ,lower than expected , CPI helping pull bond yields lower and affirm the break in the volatility index to pre-Feb lows.

US core CPI – a less volatile measure of inflation – rose by 2.1% y/y in April, unchanged from the previous month, and lower than market expectation for a 2.2% outcome. This follows Wednesday’s producer price inflation, which slowed more than expected over the same period. The disappointing data shows that inflation is unlikely to overshoot the Fed’s target in the near term.

The inflation data fueled expectations that the Fed is likely to continue with gradual policy normalisation, and the greenback retreated against major currencies. The Bloomberg dollar index closed Thursday’s trading session 0.6% lower, with the 10-yr US Treasury yield also retreating back below 3% at 2.96%, while the 2-yr yield held steady at 2.53%.

The BoE MPC voted 7-2 to keep rates on hold at 0.5%, but revised its 1Q18 growth estimate to 0.1% from 0.3% at the February meeting. The revised growth estimate was attributed to adverse weather conditions in the first quarter, which the Bank regards as a blip.

SA March mining and manufacturing production data came out weaker than expected. This, coupled with the revision of prior months’ data lower, shows that both these sectors will subtract from overall GDP growth in 1Q18. Mining production contracted by 8.4% y/y and 3.4% m/m in March, from 2.0% y/y and 0.5% m/m in February. March manufacturing production decreased by 1.3% y/y from 0.5% in February and rose by 1.3% m/m following a 2.5% decline the previous month. (RMB)

Our range for the day: R 12.4000 – R12.6500