Daily Commentary - 19 July 2018

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

USD / ZAR 13.3627 - EUR / ZAR 15.5227 - GBP / ZAR 17.4097 -

Economic Events:

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

20 July : EC ECB Current Account

Market Commentary:

This week has proven to be lacklustre for the local currency, despite the release of significant economic figures. The rand showed little reaction yesterday as headline consumer inflation data came in at 4.6% year-on-year, slightly below expectations. The looming trade war and uncertainty created by a protectionist stance from the US administration has severely dented risk sentiment, with emerging market currencies being the obvious losers. However, there is an argument to be made that the rand may have been exempted from the emerging market sell-off. “Traders have cut bearish bets on the rand. The premium of options to sell the currency over those to buy it in the next three months, known as the 25-Delta risk reversal, fell to its lowest level since May 17 on Wednesday. Options volatility has also declined as traders anticipate the currency’s price swings moderating.” (source: Bloomberg). On the JSE, the Top 40 traded up 0.35% and the All Share up 0.22%.

In the US market, the dollar is enjoying support as the market welcomed the congressional testimony of Jerome Powell, Chair of the US Federal Reserve. His testimony satisfied expectations of steady economic growth in future years and a further two interest rate hikes this year. He also managed to play down the risks stemming from the potential trade war as the US-China dispute escalates. “China’s Ministry of Commerce said on Wednesday it would have to take further measures to compensate for losses caused by the United States’ tariffs on steel and aluminium. U.S. President Donald Trump’s top economic advisor, Larry Kudlow, also said on Wednesday that he believed Chinese President Xi Jinping has blocked progress on a deal to end duelling U.S. and Chinese tariffs” (source: Reuters).

The threat of a global trade war also weighed on the euro as it weakened slightly. US President Donald Trump has extended his tariff impositions to the European Union as well, which prompted retaliation from the bloc.  “A further escalation in trade policy tensions between the European Union and the United States would hit financial markets and hurt both sides, said European Commissioner for Economic and Financial Affairs Pierre Moscovici” (source: Reuters). In the UK market, Brexit uncertainty and political turmoil remains one of the major drivers of the currency, despite a slowly improving economy. British Prime Minister Theresa May is struggling to hold onto power as the Brexit deadline draws closer with no clear exit strategy in place.

Our Range for the day: R13.2000 - R13.5000