Daily Commentary - 25 April 2018 | Merchant West

Daily Commentary - 25 April 2018

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

- USD / ZAR 12.4064 - EUR / ZAR 15.1362 - GBP / ZAR 17.3102 -

Economic Events:

25 April : SA BER Business Confidence

26 April : SA PPI Data - EC ECB Main Refinancing Rate - US Durable goods orders

27 April : UK GDP - EC Consumer Confidence - US GDP, University of Michigan Sentiment

Market Commentary:

The local currency has lost more value this week than it did for the whole of the 2018 year. The rand, along with its emerging market counterparts, continues to suffer under the pressure applied by the stronger US dollar and a general risk-off market sentiment. Market participants have been speculating on which direction the rand will follow when it eventually breaks out of its narrow trading range, with many bracing for weakness after earlier comments by the SARB Governor that the rand appears to be overvalued. There are currently not many arguments in support of rand strength, with some analysts forecasting a far weaker intrinsic value against the US dollar. “I would suggest that we still have room for further weakness but will not be filling my boots with dollars just yet given the proximity of the resistance level at 12.40,” said chief currency trader at Standard Bank Warrick Butler in a note (source: Moneyweb).

In the US market, the dollar continues to draw strength from the rise in 10-year bond yields. The dollar index, which tracks the greenback against a basket of six major currencies, traded up 0.1%. Subdued fears over a US-China trade war also aided the recent dollar strength, and has allowed the currency markets to place more weight on fundamental factors that influence currency movements. “Fed Funds rate futures prices have been constantly falling this month, pricing in a considerable chance of three more rate hikes by the end of this year. The impact is already reverberating in many emerging markets, with JPMorgan’s emerging market bond index .JPMEPR hitting a two-month low. “Higher yields are no doubt having a negative impact on emerging markets. We are likely to see outflows from emerging market bonds,” said Takahiko Sasaki, market economist at Mizuho Bank”. (Source: Reuters)

In the European market, the euro has weakened slightly but remains in a stable trading range. “Some lingering worries that European Central Bank policymakers may signal a more cautious stance at a policy meeting on Thursday also pulled the single currency lower” (source: Reuters). In the UK market, the pound appears to be recovering from its series of losses after increased M&A activity drew attention away from the state of the British economy. “Weaker-than-expected wage growth and inflation data and comments last week from the Bank of England that sowed doubt over a May interest rate hike triggered a selloff in sterling which slid to its lowest since mid-March in early trading” (source: Reuters).

Our Range for the day: R12.2500 - R12.5000