Daily Commentary - 22 May 2018

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

USD / ZAR 12.6131 - EUR / ZAR 14.8434 - GBP / ZAR 16.9294 -

Economic Events:

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 front:

South Africa's rand was weaker in late afternoon trade yesterday  after the greenback firmed to a five-month high as worries about a U.S.-China trade war eased.The relief lifted sentiment on industrial metal mining companies, helping the benchmark stock index notch up modest gains. At 17h00, the rand traded at 12.7800 versus the dollar, a 0.89 percent recovery from the year's lows of 12.8950 earlier in the session. The dollar hit a fresh five-month high on U.S. Treasury Secretary Steven Mnuchin's declaration the feared U.S.-China trade war was "on hold" following their agreement to suspend the tariff threats. The stronger dollar also weakened South African bonds, sending yields on the benchmark 2026 note 5 basis points higher to 8.67 percent."

International front:

Washington and Beijing both claimed victory on Monday as the world's two largest economies stepped back from the brink of a global trade war and agreed to hold further talks to boost U.S. exports to China. Over the weekend, the two sides pledged to keep talking about how China could import more energy and agricultural commodities from the United States so as to narrow the $335 billion annual U.S. goods and services trade deficit with China, although details and a firm timeline were thin. The biggest immediate beneficiary appeared to be China, which won a reprieve from threatened tariffs on $50 billion of its exports to the United States as well as a lifeline for ZTE Corp, China's second biggest telecom equipment maker whose existence had been threatened by U.S. sanctions.

The United States, meanwhile, appeared to have won promises of more imports by China, although there were no specifics. Threatened U.S. restrictions on Chinese investments in the United States also appeared to be put on the back burner. The U.S. Treasury said it met a legal obligation to report progress to President Donald Trump on the development of such restrictions, but it declined to provide details. Treasury Secretary Steven Mnuchin "discussed options for the president's consideration on the matter," a Treasury spokeswoman said.

The Treasury has considered invoking the International Emergency Economic Powers Act, used extensively after the 9/11 attacks in 2001, to limit Chinese investments in U.S. technology companies. Economists at Morgan Stanley estimated that exports of U.S. agricultural products, primarily beef, and energy, mostly liquified natural gas, could add between $60 billion and $90 billion to sales to China over a period of years. That is far less than the $200 billion reduction in China's trade surplus that Trump demanded at the start of talks.

Currency Summaries

EUR/USD is likely to find support at 1.1700 levels and currently trading at 1.1789 levels. The pair has made session high at 1.1791 and hit lows at 1.1742 levels. The euro was little changed against US dollar on Monday after the United States and China put their trade differences "on hold" to work on a wider agreement. Washington and Beijing both claimed victory on Monday as the world's two largest economies stepped back from the brink of a global trade war and agreed to hold further talks to boost U.S. exports to China. Over the weekend, the two sides pledged to keep talking about how China could import more energy and agricultural commodities from the United States so as to narrow the $335 billion annual U.S. goods and services trade deficit with China, although details and a firm timeline were thin. U.S. Commerce Secretary Wilbur Ross will travel to China next week to help finalize a trade agreement, Mnuchin said on Monday. Most observers say a firm deal is likely to take a long time. The euro, was flat against the dollar at 1.1791, after earlier falling to its lowest level since around mid-November. Europe's single currency has been affected by concerns about political uncertainty in Italy.This week will bring about a further test for stubborn euro bulls with the release of May flash PMI data on Wednesday, with markets waiting to see whether the first-quarter slowdown in Europe has spilled over to subsequent months.

Our range for the day : R 12.5000 – R12.85