DAILY COMMENTARY - 13 MAY 2019

Merchant West Financial Services Company

Merchant West Capital Markets

USD/ZAR 14.2621 | EUR/ZAR 16.0210 | GBP/ZAR 18.5443

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

email: treasury@merchantwest.co.za

Market Data:

13 May - US Fed's Claida Speech

14 May - UK Unemployment Rate | EU - Industrial Production 

15 May - Tur Budget Balance | EU - Gross Domestic Product | US - Retail Sales | US - Industrial Production 

16 May - EU Trade Balance | EU - Eurogroup Meeting | US - Building Permits Change 

17 May - EU Consumer Price Index | US - Michigan Consumer Sentiment Index

Market Commentary:

The elections are now behind us with all the voting and counting done – in line with our expectations, the ANC won with a 57.5% margin down from 62% from five years ago. We continue to emphasise that the road ahead is a long and bumpy with structural reforms not possible overnight. The ANC victory was well received by the market with the Rand adding over 2% of gains last week – outperforming EM peers after briefly dipping below 14.14 on Friday evening in the New York session. Focus will now turn back to tweets and ‘Trade Wars’ with Chinese retaliation measures expected. We are currently trading in line with the 200-day moving average at the 14.24 level with a hint of risk-off tone this morning (BNP Paribas).  

Chinese shares fell on Monday and the yuan weakened to a four-month low as investors’ hopes for a deal to end an escalating trade war between the United States and China were dashed. The benchmark Shanghai Composite index was 1% lower at the midday break and the blue-chip CSI300 index lost 1.3%, resuming the previous week’s downward slide. While they recorded sharp losses for the whole of last week, both indexes had surged more than 3% on Friday, lifted by hopes that the continuation of talks could bring an agreement between Beijing and Washington, despite President Donald Trump hiking tariffs on $200 billion worth of Chinese goods. But those hopes ebbed on Monday as Beijing and Washington appeared to be at an impasse, as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests. The smaller Shenzhen index was down 0.9% and the start-up board ChiNext Composite index was weaker by 1.66%.Markets in Hong Kong were closed Monday for a public holiday (Reuters.com).

The other major currencies were relatively calm, with the safe-haven yen still supported but not aggressively so. The dollar was holding at 109.75 yen, down 0.2% on the day and just above a 14-week trough of 109.46. The euro was steady at $1.1233, while the dollar was little changed against a basket of currencies at 97.302. “If there is a lack of progress (in the U.S.-China talks) over the coming weeks, Asian currencies will come under further pressure,” noted Khoon Goh, head of Asia research at ANZ Research, while adding that his team does not expect the yuan will break the psychological 7 per dollar level. In commodity markets, oil prices remained a relatively tight range, with the U.S. crude futures were last down 0.1% at $61.62 a barrel, while Brent crude futures gained 0.3 percent at $70.81. Spot gold eased 0.1% to $1,283.61 per ounce. On the other hand, digital currencies maintained most of their big gains made over the weekend. Bitcoin jumped more than 10 percent on Saturday and marked its nine-month high of $7,585.00 on Sunday before paring the gains. It last quoted at $7069.76, up 1.4% on the day (Reuters.com).

Range for the day, USDZAR: 14.15 – 14.35