Daily Commentary - 21 May 2018

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

USD / ZAR 12.8720 - EUR / ZAR 15.0924 - GBP / ZAR 17.2617 -

Economic Events:

21 May : No data of real importance

22 May : No data of real importance

23 May : EC Markit Eurozone Manufacturing PMI - SA CPI - US New Home Sales ; FOMC Meeting Minutes

24 May : GE GDP - US Initial Jobless Claims - SA SARB Announce Interest Rate

25 May : UK GDP - US Durable Goods Orders ;University of Michigan Sentiment

Market Commentary:

Local currency front:

 

South Africa's rand weakened on Friday as surging U.S. Treasury yields and continued dollar rally sent emerging markets tumbling. Stocks were dragged lower with banking shares leading the way amid continued risk-off sentiment for emerging markets. At 15h45, the rand traded 1.65 percent lower against the dollar at 12.7975 per dollar, having reached session low of 12.8200, its weakest level since Dec. 19.

Emerging market currencies across the board were down against the greenback, led by the Turkish lira, as risk off sentiment has caused an exit from emerging markets.

The dollar has risen 5 percent since mid-February and investors are betting that U.S. interest rates will need to rise further to curb inflation.

"The higher interest rate expectation does not sit well with the rand, in the short term we touch 12.800 and the next level being 13.000 is worrying," said Cheslyn Francis, derivatives trader at Afrifocus securities.

The Turkey's lira edged towards yet another record low on Friday as investors waited to see whether Ankara's central bank will take action to shore up the ailing currency with 10-yearbenchmark bond yields rising to 15 percent. Government bonds weakened, with the yield for the benchmark instrument due in 2026 rising 11.5 basis points to8.625 percent. On the bourse, the benchmark Top-40 index fell 0.74percent to 51,292 points while the All-Share index lowered 0.65 percent to 57,804 points. The banking sector weakened 1.95 percent amid dwindling global appetite for emerging markets, with Standard Bank down 2.48 percent to 197.99 rand and Nedbank1.22 percent lower to 289.48 rand. "The oil price has moved from say 60 dollars a barrel in the beginning of the year to 80 (dollars) now and the rand has moved from around 11.50 a dollar to 12.50 a dollar and that's going to put the consumer under a lot of pressure and the banks are reflecting that," said Cratos Capital equities trader Greg Davies.

Further losses were seen from construction firm Aveng Limited which closed down 1.10 percent to 0.90 ran dafter it said it has agreed in principle to merge to create a multinational engineering group with Murray & Roberts

International front:

 

The dollar edged up against the yen on Monday, after U.S. Treasury Secretary Steven Mnuchin said the U.S. trade war with China is "on hold", boosting risk sentiment amid hopes for an easing of trade tensions between the world's two biggest economies. The dollar rose 0.2 percent to 110.99 against the Yen in early Asian trade, nearing a four-month high of 111.085 yen that had been set on Friday.The easing of U.S.-China trade tensions is likely to underpin riskier assets such as equities and bodes well for the dollar against the safe-haven yen, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore. "I think equity markets are going to be in a happier place today," Innes said.

If U.S. 10-year Treasury yields were to climb above the seven-year high of 3.128 percent set on Friday and the dollar gains a solid foothold above 111 yen, the greenback could attempt for the 112-yen levels, Oanda's Innes added. In equity markets, U.S. S&P mini futures rose 0.6 percent in early Asian trade, as Mnuchin said on Sunday that the U.S. trade war with China is "on hold" after the world's largest economies agreed to drop their tariff threats while they work on a wider trade agreement. Mnuchin and U.S. President Donald Trump's top economic adviser, Larry Kudlow, said the agreement reached by Chinese and American negotiators on Saturday sets up a framework for addressing trade imbalances in the future.

The dollar's index against a basket of six major currencies set a fresh five-month high on Monday, touching a peak of 93.860 at one point. The euro slipped to 1.1744 against the greenback at one point, touching its lowest level in five months, and was last down 0.2 percent on the day at 1.1747. Europe's single currency has dropped around seven cents in about a month amid a sharp dollar rally. A focus for markets this week is Wednesday's release of minutes from the Federal Reserve's latest monetary policy meeting. Investors will be watching the minutes for clues about the pace of the current tightening cycle.

Our range for the day : R 12.7500 – R12.9500