Daily Commentary - 18 June 2018

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

USD / ZAR 13.4735 - EUR / ZAR 15.5935 - GBP / ZAR 17.8243 -

Economic Events:

18 June : No data of real importance

19 June: EC Current Account - US Housing Starts

20 June : SA CPI Data - US MBA Mortgage Application ;Current Account Balance ; Existing Home Sales

21 June : SA Current Account Balance - UK BOE Rate Decision - US Jobless Claims - EC Consumer Confidence

22 June: EC Eurozone PMI  - US PMI

Market Commentary:

One-month implied volatility spiked for ZAR on Friday after a two-day drop in line with the U.S. Dollar that edged higher – the rand opens  around 2.51% weaker than a week ago compounding losses to over 5.5% for the month of June as the Ramaphosa gains are almost wiped out.

We are currently trading at the 13.40 levels after the 13.43 open with the six-month lows in sight of 13.50. Global factors continue to weigh-in on EM currencies with the return of ‘Trade Wars’ and the Euro comes under some pressure currently trading 1.1580 against the Dollar.

Locally we have CPI data on Wednesday and investors will analyse the revised draft of the mining charter. Levels to watch as said by BNP will be 13.50 which will open up to 13.65 with 13.20 needed to revert upside.  Source BNP

Globally 

The stock market retains resilience regardless of looming geopolitical risk . US Treasuries were bid into the weekend as jitters surrounding US-China trade wars generated demand for less risky assets. The 10yr yield pulled back notably to end at a 1-week low around 2.92%, while the 30yr yield softened to a late-May low of around 3.05%.

It seems as though the market is expressing some concern surrounding the growth impact that the trade rift might have and the yield curve remained flat into the weekend, with the 10v2 spread consolidating near cycle lows around 37bps, while the 30v2 spread is anchored just shy of the 50bps level.

The ECB’s less hawkish than expected stance last week possibly also exerted some pressure on UST yields, yet EGBs outperformed into the weekend and the US vs. Bund 10yr yield spread widened furthers 252bps. Given that the policy divergence theme was again reaffirmed following the Fed and ECB meetings last week, this spread could widen further in sessions to come towards a recent peak just shy of 260bps that was tested in May. Source Investec

Locally

Looking at the week ahead, there will be two key data releases that will offer further perspective on the ZAR. The first will be inflation. Investors are generally looking for a rise in inflation to 4.7%, but again the risk we would highlight is that inflation against surprises to the downside, mostly on account of the tightness in the credit cycle and the uncharacteristically slow growth in M3 and PSCE which simply does not offer inflation the air to breath as it might in a more rapidly expanding money supply environment.

The second release will be that of the current account data. While it too dates back to Q1 and is very historic given that we are almost ending Q2, the data will offer investors some perspective on just how much of a deficit the country needs to finance either through portfolio and FDI inflows or through debt. Source ETM

Our range for the day : R13.3000 – R13.5500