Daily Commentary - 16 May 2018

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

USD / ZAR 12.4997 - EUR / ZAR 14.8046 - GBP / ZAR 16.8727 -

Economic Events:

16 May : EC CPI Data - US Mortgage Applications - SA Retail Sales - US Housing Starts ; Industrial Production

17 May : US Jobless Claims

18 May : EC ECB Current Account ;Trade Balance

Market Commentary:

On Tuesday, the rand suffered one of its worst declines in over a year as a combination of international and domestic factors dragged the local unit down. With the US treasury yields hovering below the psychological 3% level over the recent past, a confirmed break yesterday fuelled the US dollar as interest rate hikes could come at a faster pace than what was previously priced in. Local unemployment data, although not yet released, also weighed on the rand as investors brace for the potential impact. “The unemployment rate was 26.7%, unchanged from the previous three months, Statistics South Africa said in a report released on Tuesday in the capital, Pretoria. The median estimate was for 26.9%” (source: Moneyweb). Markets will also keep an eye on the upcoming  interest rate decision by the SARB as the weaker rand could provide some inflationary pressure.

In the US market, the dollar is currently trading at a five-month high on the back of the stronger US treasury yields. “The dollar has gained since mid-April as easing tensions in the Korean Peninsula and moves by China and the United States to avoid a full-blown trade war allowed investors to focus on the yield advantage the United States enjoys over other countries” (source: Reuters). However, geopolitical tensions have again resurfaced as “North Korea opted to suspend high-level talks with South Korea and said it may reconsider holding a summit with the United States if Washington continues to unilaterally insist on Pyongyang giving up its nuclear programme” (source: Reuters).

In the European market, the euro has weakened slightly but remains relatively stable. “Prime Minister Theresa May’s government will publish detailed plans for its future relationship with the European Union next month, according to a government official, in an attempt to break the deadlock in Brexit negotiations” (source: Reuters).

In the UK market, the pound has fallen to its lowest level since December last year as the US dollar strengthened. “Weak economic data and a decision by the Bank of England to hold interest rates and cut its growth projections have confounded sterling bulls in the last month after a period outperforming other major currencies” (source: Reuters).

In other news, South Africa is hoping to ride a wave of improved investor sentiment by tapping the Eurobond market for the first time under new President Cyril Ramaphosa, as his administration tackles mismanagement and corruption in the continent’s most industrialised economy. The country is marketing dollar securities maturing in 2030 and 2048, with initial price talk of about 6% and 6.37%, respectively. (source: Moneyweb)

Our range for the day : R12.4000 - R12.7000