Daily Commentary - 17 July 2018

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

USD / ZAR 13.2301 - EUR / ZAR 15.5150 - GBP / ZAR 17.5181 -

Economic Events:

17 July : SA BER Consumer Confidence - US Industrial Production ;Total Net TIC Flows

18 July: SA CPI Data - EC CPI Data - US MBA Mortgage Applications - SA Retail Sales

19 July: US Initial Jobless Claims - SA SARB Interest Rate announcement

20 July : EC ECB Current Account

Market Commentary:

The rand is off to a strong start for the trading week after holding onto the previous weeks` gains. Despite international factors having been the major contributor to the direction of the local currency, the rand appeared to take little notice of yesterday`s Chinese GDP and US retail sales figures. “Offshore investors have finally ended their longest weekly selling streak of South African bonds on record. Non-residents bought a net 1 billion rand ($76 million) of the country’s debt last week, according to Johannesburg Stock Exchange data” (source: Bloomberg). The rand has also drawn support following the UAE and Saudi-Arabia`s plan to invest significantly in the local economy. Although emerging market sentiment has been volatile over the recent past, the rand remains a carry trade favourite and investors will closely watch the Monetary Policy Committee meeting scheduled for Thursday this week. According to a Reuters poll of 25 economists, the South African Reserve Bank is expected to keep rates unchanged at 6.5%. On the JSE, the Top 40 traded down 1.8% and the All Share down 1.64%.

In the US market, “the dollar pared gains against its major peers on Tuesday, edging lower as investors awaited Federal Reserve Chairman Jerome Powell’s first congressional testimony for any clues on the pace of U.S. interest rate rises” (source: Reuters). The trade disputes have established itself as a persistent threat in international markets and has attracted significant criticism, including warnings from institutions such as the International Monetary Fund. However, the US dollar appears to have emerged largely unscathed and is slowly achieving almost safe-haven status. Today`s testimony will signal the extent to which the trade war will influence monetary policy in the US, and the impact on international risk appetite. “Speculators were net long dollars for a fourth consecutive week, after being net short for 48 straight weeks” (source: Reuters).

In the European markets, the euro strengthened slightly but upside potential remains limited as no clear consensus has been reached on how and when Britain will leave the European Union. The unclear Brexit strategy has also placed the pound under pressure, despite signs of an improving economy. “Long bets on sterling have been whittled down in recent days with overall net positions mildly bearish on the currency, positioning data shows” (source: Reuters)

Our Range for the Day: R13.1200 - R13.3500