Daily Commentary - 14 June 2018 | Merchant West

Daily Commentary - 14 June 2018

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

USD / ZAR 13.1971 - EUR / ZAR 15.5991 - GBP / ZAR 17.6928 -

Economic Events:

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 front:

USD-ZAR investors for now appear to be treading water. They wanted the clarity from the Fed and the ECB and as well as an update on the data that was released yesterday. On that front, yesterday revealed another two data releases which disappointed. The BER's business confidence index was not able to sustain the recovery trajectory, whilst retail sales for April came in well below market expectations to highlight the general weakness in demand across the SA economy. Ramaphoria quite clearly has not found expression in any tangible change to the trajectory of economic activity and it will likely require a concerted effort on the part of government to undo the damage done and to recover from the exceedingly low level of trust the private sector has with government and the policies that are being adopted. Issues such as land expropriation without compensation has come as an unwelcome distraction to the owners of property and capital that will think twice about deploying it until such time as they better understand the government's plans and receive enough assurances that any investment made into SA will be safe.

At present, there are many that have expressed doubts that this will be the case and are choosing instead to act cautiously. That will be an ongoing theme until government takes the private sector into its confidence and explains exactly how the land reform policies will work, who will be affected and how it will be dealt with. But whilst a full raft of rate hikes are priced into the US and whilst domestic growth remains weak, one needs to be cautious in translating that into a weak ZAR view. Now that US rate hikes appear fully priced in, the risk will always lie towards some disappointment in data. On the domestic front, investors are reminded that the ZAR often performs best in a weak or recessionary environment when the consumptive culture is retrenched. Yesterday's retail sales figures would suggest that SA's consumptive demand is not particularly strong which should in theory translate into weaker imports. Data through the months ahead will confirm. For now, we look to the ECB as the next major event risk and direction will likely follow post the announcement this afternoon.Source: ETM Analytics (Pty) Ltd

International front:

The dollar slipped back from three-week highs against the yen on Thursday, quickly erasing gains made after the Federal Reserve took a slightly more hawkish policy tone in signalling two more rate hikes by year-end. The greenback's bounce faded as traders booked profits before the European Central Bank's meeting later on Thursday. Fresh concerns about U.S.-China trade relations were also seen weighing on the dollar against the yen, which is often sought in times of political tensions. The dollar last traded at 110.19 yen having lost steam after hitting a three-week peak of 110.85 shortly after the Fed's latest policy statement, which saw a solid outlook for the world's biggest economy.

Wall Street's top banks expect the U.S. Federal Reserve to raise interest rates twice more this year and three times in 2019, in line with forecasts issued Wednesday by central bank policy makers who signaled a modest acceleration to their pace of rate hikes along with increased confidence in the economy. A Reuters poll on Wednesday found the median expectation among the so-called primary dealers, the 23 large banks authorized to transact directly with the Fed, was for the central bank's benchmark overnight lending rate to climb to a range of 2.25 percent to 2.50 percent by the end of this year. It will rise to between 3.00 and 3.25 percent at the end of 2019.

The euro nudged up 0.1 percent to $1.1802, bouncing back from $1.1725 hit after the Fed's announcements and edging near last week's high of $1.1840. The European Central Bank will debate on Thursday whether to end its huge asset purchases by year-end, in what would be its biggest step towards dismantling crisis-era stimulus credited with pulling the euro zone economy out of recession. Meeting as growth is slowing and political populism threatens to set off market turbulence, the ECB is expected to argue that its 2.55 trillion euro ($3.00 trillion) bond-buying scheme has done its job in bringing the 19-member currency bloc back from the brink of collapse.  Whether policymakers take the actual decision at their meeting in Riga on Thursday or hold off until July appears secondary as they have long argued that the scheme, commonly known as quantitative easing (QE), should be concluded and the policy focus shift to the expected path of interest rates.

Our range for the day : R13.1500- R 13.3500