Daily Commentary - 24 July 2017

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

- USD / ZAR 12.9484 - EUR / ZAR 15.0760 - GBP / ZAR 16.8464 -

Economic Events:

24-July: EC Markit Eurozone PMI - US Markit US PMI

25-July: US Consumer Confidence

26-July: UK GDP - US Mortgage Applications  ; New Home Sales

27-July: SA PPI - US  Durable Goods Orders ; Jobless Claims ; Advanced Goods Trade Balance

28-July: EU Economic Confidence - SA Budget - US GDP ;  University Of Michigan Sentiment

Market Commentary:

ZAR

 

The International Monetary Fund (IMF) predicted slow growth for the South African economy this year, after the country slipped into a technical recession. Perceived political instability in the country also did not contribute to the fund's economists believing that South Africa could drag itself out of its current predicament. The IMF predicted modest growth for South Africa of 1 to 1.2% over the next year. "The slight upward revision to 2017 growth relative to the April 2017 WEO forecast reflects a modest upgrading of growth prospects for South Africa," the IMF stated. "However, the outlook for South Africa remains difficult, with elevated political uncertainty and weak consumer and business confidence, and the country’s growth forecast was consequently marked down for 2018," it stated. In the local market, the JSE Top-40 Index managed to close down 0.23%, whilst the JSE All-Share Index also closed down 0.23%. The Financials Index closed down 0.22%, whilst the Resources Index closed down 1.44%. The Industrials Index closed up 0.16% mainly thanks to Naspers which closed 0.62% firmer.

The currency fell after the South African Reserve Bank reduced its key rate on Thursday to 6.75% from 7% to boost an economy in recession, defying predictions of 20 out of 23 economists in a Bloomberg survey. But it soon reversed most of its losses to trade at R12.9587 per dollar at 19:00 on Thursday, around the same level as before the SARB’s announcement. By 08:30 on Friday, it was trading 0.17% stronger at R13.01 to the dollar. The rand has been one of the main beneficiaries of an emerging-market rally this year, driven by the belief that the US Federal Reserve will only enact rate increases slowly. The high returns on South African bonds mean it’s unlikely to weaken much, especially as the central bank will be cautious about further cuts with inflation near the top of its target range, according to Aberdeen Asset Management and Rabobank.

EUR

 

European markets are expected to open mixed, with financial spread-better CMC Markets predicting Britain's FTSE 100 to open 0.1 percent lower, Germany's DAX to open little changed, and France's CAC 40 to start the day up 0.1 percent. On Friday, global stocks ended a 10-day winning streak, taking a breather from a rally that had propelled them to a record high in the previous session.

European shares also closed lower, with Germany's DAX slumping 1.7 percent, hurt by the euro's strength. ECB President Mario Draghi's comments on Thursday, which conspicuously avoided citing the euro's recent strength as a problem, emboldened traders convinced the central bank will begin tapering its bond-buying program later this year. "There has been very little back-pedalling on the long euro storyline as dealers continue to place much emphasis on Draghi declining the opportunity to talk down the currency post-ECB minutes," Stephen Innes, head of Asia-Pacific trading at OANDA, wrote in a note. "And factoring in the expanding U.S. political sinkhole which is weighing on broader USD sentiment, it's unlikely the market has run out of steam," he wrote, adding he expects the euro to test the August 2015 high of $1.1715 "sooner than later". Fast names are adding to their long positions on the euro having trimmed their exposure heading into the ECB meeting, said a London-based trader, who asked not to be identified because they are not allowed to speak publicly. The euro is also benefiting as investors assess whether an investigation into the US president may stall his economic agenda.

USD

 

Wall Street indexes ended Friday flat to about 0.15 percent lower, as disappointing earnings from General Electric and energy shares weighed. The dollar index, which tracks the greenback against a basket of trade-weighted peers, crept higher but remained subdued on Monday. There was very little relief for the US dollar as it continued to trade under pressure against most major currency pairs. The Euro reached a new 12-month high in the early hours of this morning to reach a high of 1.1677 against the US dollar.

Investors now shift their attention to the US Fed FOMC statement which is expected on Wednesday this week, which might bring a possible change of fortunes for the greenback. "All eyes will be on the Fed this week, with market participants eager to see if the Fed formally announces the start of its balance sheet normalization plan or opts to wait until September," Michala Marcussen, global head of economics at Societe Generale, wrote in a note. In commodities, oil prices rose on expectations that the joint OPEC and non-OPEC ministerial meeting later in the day would address rising production from Nigeria and Libya, two OPEC members exempted from the cuts, bolstered prices.

Global benchmark Brent crude was up 0.1 percent at $48.10 a barrel, after Friday's 2.5 percent tumble, while U.S. crude edged up slightly to $45.79, after Friday's 2.2 percent slump. Gold had another positive day as investors piled into the commodity on safe-haven buying. The precious metal scored intra-day highs of $1252.23 per ounce which buoyed some of the JSE listed gold miners earlier on. However, the stronger rand reduced the potential gains that could have resulted from this higher gold price. When the JSE closed Gold was recorded at $1251.24 per ounce. Gold shone on the dollar's weakness and a decline in risk appetite, with spot gold just slightly lower at $1,254.31 an ounce, retaining most of Friday's 0.8 percent jump, and slightly below a one-month high hit earlier.

Our range for the day : R12.88 - R13.02