Daily Commentary - 18 May 2018

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

USD / ZAR 12.5418 - EUR / ZAR 14.8101 - GBP / ZAR 16.9355 -

Economic Events:

18 May : EC ECB Current Account ;Trade Balance

Market Commentary:

Today brings the end of a very volatile trading work for the rand after weakening slightly yesterday. As US treasury yields continued rising which sent the dollar surging, emerging market currencies came under pressure, with the rand proving to be more resilient than its emerging market peers. Geopolitical uncertainty and global risk aversion also weighed on the rand as the Israeli-Palestinian conflict escalates. The rand did eventually find some relief this week as Turkey’s central bank said it would act to stem a selloff in the lira (source: Reuters). The bout of volatility in the rand comes as economists expect inflation to rise in the coming months from the seven-year low of 3.8% reached in March (source: Business Live).

A surging dollar and the highest 10-year US Treasury yields since 2011 are fuelling bets that policy makers in key developing nations from India to Mexico will raise interest rates faster than economists previously anticipated. The turnaround is led by concern that a failure to tighten monetary policy risks the possibility investors will zero in on swollen current-account deficits, spurring currency selloffs and sending inflation soaring. (source: Bloomberg)

In the US market, the dollar continues on its strengthening trend as rising US treasury yields signal an increasingly more positive economic outlook for the US. US benchmark 10-year yields hit a high of 3.128 percent in early Asian trade on Friday, the highest in nearly seven years. The rising yields reflect continued optimism about the U.S. economy and expectations of growing price pressures, reinforcing expectations that the Federal Reserve would raise borrowing rates at least two more times this year and lifting the greenback. (source: Reuters)

In the European market, the euro recovered slightly despite concerns surrounding the outcome of the Italian election. “Italian markets had been jolted by a draft coalition document showing plans to ask the European Central Bank to forgive 250 billion euros in debt, and create procedures to allow countries to exit the euro. But broader Italian markets held up better on Thursday as investors played down the broader impact on euro zone political stability and questioned whether the Italian parties would really follow through on such plans”. (source: Reuters)

In the UK market,  the pound recovered slightly after reports that Britain would tell Brussels it was prepared to stay in the European Union’s customs union beyond a Brexit transitional arrangement. Britain is due to leave the EU in March next year although it has secured a transitional arrangement to keep its trade ties with the bloc unchanged until the end of 2020, as long as a permanent deal can also be reached in the coming months. (source: Reuters)

Our range for the day  : R 12.4000 – R12.6500