DAILY COMMENTARY - 22 MAY 2019 | Merchant West

DAILY COMMENTARY - 22 MAY 2019

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 14.3686 | EUR/ZAR 16.0260 | GBP/ZAR 18.2024

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Market Data:

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 steadied in late afternoon trade on Tuesday, recovering from losses earlier in the session as developing world currencies weakened on fears the protracted China-U.S trade conflict may have already begun to impact Asian economies. On the bourse, equities slipped slightly with financial stocks and retailers leading the decline. At 17h17 the rand traded at 14.3900 against the greenback, unchanged from an overnight close in New York. The unit had weakened to a session low of 14.4900 earlier on trade conflict concerns. “Investors were previously hoping that the doors would be closed firmly shut on trade dispute by the end of this month," Jameel Ahmad, global head of currency strategy & market research at FXTM, said in a note. “But the recent tariff escalations from both sides suggest that emerging market currencies will continue to find themselves exposed to external uncertainties into the second half of 2019 at least." Upcoming South Africa consumer inflation data and a central bank decision on lending rates also capped any large bets. A Reuters poll of economists and analysts conducted last week forecast the central bank will leave interest rates unchanged at 6.75%, with inflation expected to remain within the Reserve Bank's 3-6% target range. Statistics South Africa publishes April consumer figures on Wednesday at 10h00."There's now growing realisation that the first quarter GDP number is going to be particularly poor, and a weak economy is not good for the banking or retail shares," said FNB Portfolio Manager Wayne McCurrie (Reuters.com).

There is still one eye on developments abroad and the tariff battle between the US and China, as well as the European elections which may hold some bearing on Brexit. However, for now, neither one is generating much volatility as the full implications of a trade war are not fully understood while this latest Brexit news and speculation around the EU vote has been circling in the markets for some time. Furthermore, emerging markets are behaving similarly to ZAR, and there is, therefore, no obvious catalyst to drive directional momentum. For now, another day of range trading is anticipated with only the FOMC minutes this evening, holding the potential to elicit any volatility. Trading is likely to remain lethargic and position-taking limited (ETM Analytics)

The dollar largely kept to familiar trading ranges on Wednesday, as it found support near a 3-1/2-week high on higher U.S. yields after the United States eased trade restrictions on Chinese telecommunications equipment maker Huawei Technologies. The move came as a relief to markets hit by escalating trade tensions between the United States and China, though analysts said sentiment remained fragile with tariff negotiations between the world's two largest economies yet to produce a durable solution. "The trade dispute won't be resolved easily, so the risk-off mood won't come off all of a sudden, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank. "I think market sentiment will rather improve one small step at a time." Against a basket of key rival currencies, the dollar was largely steady at 98.031, having brushed a 3-1/2-week high of 98.134 overnight. The index has risen 1.9% this year. The U.S. Commerce Department blocked Huawei Technologies Co Ltd from buying U.S. goods last week, leading several companies to suspend business with the world's largest telecoms equipment maker. Chipmakers, many of which sell to Huawei, bore the brunt of the sell-off. But late on Monday, the United States granted Huawei a license to buy U.S. goods until Aug. 19 (Reuters.com).

Japan's exports fell 2.4% in April from a year earlier, down for a fifth straight month, in a sign of weakness in external demand, finance ministry data showed. That was more than the 1.8% decrease expected by economists in a Reuters poll. Sumitomo Mitsui's Sera said the yen's weakness overnight was thanks to higher U.S. Treasury yields, which ticked up in response to the recovery in U.S. equities. “When yields are rising, it's natural for the dollar to be bought. I think moves in U.S. yields are really important," she said. MUFG Bank's chief currency strategist Minori Uchida said he expected demand for the U.S. currency to remain strong on a need for dollar funding among emerging markets and on investor cautiousness due to the Sino-U.S. trade dispute. “Even if yields fall, that's not likely to put a big dent in the dollar's rise," he said. The Australian dollar edged down to $0.6881, drifting back toward its recent low of $0.6865 as investors piled into wagers for two cuts in interest rates by the country's central bank this year (Reuters.com).

Range for the day: 14.30 -14.55