Daily Commentary - 19 June 2017

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

- USD / ZAR 12.8180 - EUR / ZAR 14.3515 - GBP / ZAR 16.4168 -

Economic Events:

19-June: No data of real importance

20-June: SA Current Account Data

21-June: SA CPI - US Existing Home Sales

22-June: US Jobless Claims and Consumer Confidence

23-June: EZ PMI - US PMI and New Home Sales

Market Commentary:

On Thursday the Department of Minerals and Energy released the revised Mining Charter. BEE ownership was raised from 26% to 30%, while requiring a 51% black shareholding in all prospecting licences. After the announcement, mining stocks shed up to 10% and USD/ZAR lost 2% as well. The US dollar also pushed higher after a 25bp rate last week and a hawkish accompanying Fed stance. This together with the media response to the Mining Charter is expected to cause the rand to trade even weaker. The rand is also weaker against the Euro and Sterling this morning, opening at 14.33 and 16.33 respectively.

Mining remains South Africa’s biggest export foreign currency earner and even though it may not drive as much of SA’s GDP as it did 20 and 30 years ago, but it does have a significant impact on its trade and current accounts. It also effectively creates the space for SA to consume and still remain in a sustainable position. Our trade account is a very crude barometer of how much we consume relative to what we produce. If it either consumes a lot more or produces a lot less, the probability is high that a deficit will ensue. A deficit always needs to be financed by foreigners that are prepared to fund SA at an appropriate interest rate in order to allow them to consume. SA’s export sectors are therefore sectors that should be protected at all costs and assisted at every turn as they play a very strategic role in allowing the rest of the economy to flourish. In SA, the mining sector has done the exact opposite. Not only has it not flourished, but contracted instead and slipped further down the rankings of contributions to GDP. SA has therefore been further deprived of much needed exports and foreign currency earnings. The best way to become more inclusive to aid transformation is not to shrink the pie and bequeath to workers and previously disadvantaged communities an uncompetitive, shrinking and unsustainable industry, but to do the exact opposite. Whilst one can appreciate the desire to transform sectors, one cannot think about these dynamics myopically. These industries need to be able to compete on a global scale and prioritising transformation above competitiveness can be self-defeating, especially if SA’s mining industry steadily discourages investment, encourages divestment and externalising mining efforts and ultimately becomes less relevant on a global scale.

Globally, French President Emmanuel Macron has won a decisive majority in parliamentary elections, giving him considerable power as he embarks on reforms to reinvigorate the economy and restore French influence in Europe. Brexit secretary David Davis starts negotiations in Brussels today that will set the terms on which Britain leaves the European Union. This week existing and new home sales figures are due out of the States with a number of Fed officials giving their first public comments following the central bank’s decision to raise interest rates.

Expected range for the day : 12.65-12.95