DAILY COMMENTARY - 21 MAY 2019

Merchant West Advisory Services

Merchant West Capital Markets

USD/ZAR 14.4497 | EUR/ZAR 16.1222| GBP/ZAR 18.3438

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Market Data:

21 May - EU Consumer Price Index | US - Michigan Consumer Sentiment Index

22 May - SA Leading Indicator | CPI | EU - Consumer Confidence | UK - Retail Price Index | US - MBA Mortgage Applications | FOMC Meeting Minutes

23 May -  SA SARB Interest Rate Decision | US - Initial Jobless Claims | New Home Sales

24 May - US Durable Good Orders 

Market Commentary:

South Africa's rand firmed on Monday after a sharp slide in the previous week as a global sell-off in risk assets slowed, with investors positioning for an event-packed week. Stocks weakened, led by bourse heavyweight and e-commerce group Naspers. At 17h10 the rand was 0.52% firmer at 14.3725 per dollar compared with its Friday close of 14.4475 in New York. Last week the rand and other emerging market currencies weakened as the trade spat between Beijing and Washington worsened, while solid economic data from the United States also pushed money towards the greenback. The rand shed close to 2 percent in the previous week but remained one of the better performing emerging currencies as the post-election positivity limited losses, with investors awaiting the announcement of a new cabinet. Before the announcement by incoming President Cyril Ramaphosa after this weekend's inauguration, Statistics South Africa publishes consumer inflation data on Wednesday and the central bank decides on lending rates on Thursday.

Investors also await developments in U.S.-China trade negotiations and the Federal Reserve minutes that may give more clues on what prompted U.S. policymakers to strike a broadly neutral stance this month. In fixed income, the yield on the benchmark 10-year South African government bond due in 2026 ZAR186= fell 1.5 basis points to 8.5%. Worries that the United States and China were digging in for a longer, costlier trade war weighed on financial markets on Monday as Beijing accused Washington of harboring "extravagant expectations" for a deal to end their dispute. Investors added up the costs of higher tariffs on Chinese and U.S. goods as well as the effects of severe U.S. restrictions on China's Huawei Technologies for the U.S. technology sector, sharply driving down shares of suppliers Qualcomm, Micron Technology and Broadcom Inc.

Apple Inc shares fell 3.3 percent, hurt by a warning from HSBC that higher tariffs on Chinese goods would force the tech company to raise prices, with "dire consequences" on demand for its products. Morgan Stanley analysts warned that a collapse of the trade talks and a lasting breakdown with higher tariffs on all U.S.-China trade would push the global economy towards recession. In a note to clients, they said such a scenario would prompt the U.S. Federal Reserve to slash interest rates back to zero by the spring of 2020, but lags in policy transmission "would mean that we might not be able to avert the tightening of financial conditions and a full-blown recession." Negotiations between the United States and China have soured dramatically since early May, when Chinese officials sought major changes to the text of a proposed deal that the Trump administration says had been largely agreed. A subsequent round of talks ended with no movement as U.S. President Donald Trump increased tariffs to 25 percent from 10 percent on $200 billion worth of Chinese imports and threatened to impose duties on all remaining Chinese goods sold in the United States.

Anglo American Platinum (Amplats) said on Monday it fired about half of the underground workers at its Mototolo mine following an illegal strike.Workers belonging to the General Industrial Workers Union of South Africa (GIWUSA) downed tools on May 12 following a dispute over the employees' medical scheme, despite an interim court interdict against any strike action, Amplats said. A union official at GIWUSA, which is the only recognised union at the mine, said they would approach the labour court over the dismissals. Amplats said the sacked employees had until May 21 to appeal the decision.The firm said the impact on production had so far been minimal. "Anglo American Platinum is exploring options to ensure that Mototolo Mine recommences full production as soon as practically possible," it said in a statement

*Information from Reuters.com

Range for the day: 14.30 – 14.55