Daily Commentary - 22 June 2017

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

- USD / ZAR 12.9523 - EUR / ZAR 14.4676 - GBP / ZAR 16.4121 -

Economic Events:

22-June: US Jobless Claims and Consumer Confidence

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

Market Commentary:

CPI for May was published slightly higher than April yesterday, but not enough to change expectations that the central bank will be loosening monetary policy this year. RMB expects inflation to slow to 5% in June and ultimately to 4% in 1Q18 and also expect rate cuts to happen only late this year.

The Auditor General’s report relating to the findings on the management of municipalities, showed that only 49 out of 263 municipalities received clean audits, with Cape Town was the only major metro to receive a clean audit. This does highlight that maladministration in ANC led municipalities runs rife and that it remains too soon for changes in government seen in last year’s regional elections to have yielded much fruit. Irregular spending is directly linked to corruption.

Today the Constitutional Court will give its ruling as to whether the vote of no confidence against President Zuma can be conducted via a secret ballot. This might yield a dramatic result, but the ANC will not allow that to happen in parliament. If the speaker is given an option, she will likely not offer a secret ballot as the stakes for the ANC currently are too high. Another point to note is that the ANC remains steadfast in ousting Zuma the ANC way and will therefore not allow themselves to be dictated to by opposition parties on how it runs its affairs. If the Constitutional Court approves the secret ballot and it fails in parliament again, it layers yet another layer of complicity on ANC MPs that in time will be seen as a blotch against their name and will introduce another layer of dynamics to SA political spectrum. It will ratchet up pressure on the Zuma administration further.

In the short term, we need to turn our attention to the retreat in commodity prices which have been on the slide for some time now and if sustained will eventually start to weigh on commodity currencies like ZAR, as they are often seen as a barometer for broader demand dynamics.

Existing home sales in the US increased in May, reflecting a sign of solid demand in the face of fast-rising prices and tight inventory.

Brent crude fell below $45 a barrel for the first time since November yesterday as concerns rise over whether a supply glut will ease. This morning Asian stocks advanced on the back of this.

Gold prices rose for a second straight day this morning, supported by an easing dollar and weakness in U.S. Treasury yields.

Range for today :  12.90 – 13.20