Daily Commentary - 13 July 2018

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

USD / ZAR 13.3392 - EUR / ZAR 15.5161 - GBP / ZAR 17.5087 -

Economic Events

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

Market Commentary:

The South African rand was on the front foot, closing more than 1% firmer at R13.2975/$, after testing a session low of R13.23/$, supported by better than expected manufacturing data.

Global equity stocks trended higher yesterday on the back of improved risk sentiment, while the rand and other EM currencies continued to benefit from a weaker US dollar. The S&P, Nikkei and EM stocks rose by 0.9%, 1.2% and 0.5%, while the JSE ALSI closed 0.7% weaker. The rand appreciated by 1.8%, reversing Wednesday’s losses to close at 13.30. Markets took comfort from reports that both the US and China are open to trade talks, which indicated that neither are likely to take a hard stance.

US headline inflation rose to 2.9% y/y and 0.1% m/m in June from 2.8% and 0.1% in May. The annual number was in line with market expectations, while the monthly figures printed below the market’s 0.2% consensus. Core inflation, the Fed’s preferred measure, increased to 2.3% y/y (0.2% m/m) from 2.2% y/y (0.2% m/m) as expected. The gradual pick-up in inflation alleviates pressure from the Fed to hike rates aggressively.

Locally, mining and manufacturing data for May came out better than expected – indicating 2Q18 GDP growth is likely to recover from the 2.2% contraction in 1Q18. Mining and manufacturing production rose by 5.0% m/m and 1.5% m/m in May, following a 2.5% and 0.5% decline in April. Both prints beat market expectations and look set to contribute positively to overall growth in the second quarter.

President Cyril Ramaphosa secured a US$10bn investment injection from Saudi Arabia during his state visit to the oil-rich nation. . The investment will be earmarked for energy and power creation. Saudi Arabi’s commitment follow’s the UK’s £50m agreement earlier in the year and adds to the president’s US$100bn investment drive.

In the UK PM Theresa May published the blueprint for Britain’s exit plan from the EU yesterday; the white paper confirmed an intended soft exit. Sterling rose on expectations that the policy document would assist negotiations between the EU and Britain when it leaves the bloc in March 2019. The core of the plan is for a free-trade area for goods with the EU. Source : RMB

 No heavy data out today, focus will remain on any trade tariff developments.

 

Our range for the day: R 13-1800 – R 13.5000