Daily Commentary - 26 June 2017 | Merchant West

Daily Commentary - 26 June 2017

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

- USD / ZAR 12.8850 - EUR / ZAR 14.4078 - GBP / ZAR 16.4027 -

Economic Events:

26-June: US Durable Goods Orders

27-June: US Conf. board Consumer Confidence

28-June: US Advanced Goods Trade Balance ;Pending Home Sales

29-June: EZ Economic Confidence  - SA PPI - US GDP; Jobless Claims

30-June: UK GDP - SA Trade Balance -US University of Michigan Sentiment

Market Commentary:

South Africa's rand opened firmer today and was seen in a tight range after gains last week with no domestic data due before Tuesday and no major political events ahead of the ruling ANC's policy conference which starts on Friday. At 09h00, the rand traded at 12.8925 versus the dollar, 0.25 percent from its New York close on Friday of 12.9275. The rand extended its recent recovery on Friday as political uncertainty eased and local economic fundamentals came back in focus, highlighting the currency's high return value as investors' search for high yields continued. Today the rand is seen in a range of 12.80 to 13.00, NKC African Economics said in a note.

The South African parliament is planning to challenge an anti-graft watchdog's recommendation of constitutional changes to the mandate of the central bank, it said on Friday, highlighting worsening divisions between state institutions. The central bank and Barclays Africa have also asked for a court review of Public Protector Busi Mkhwebane's proposal to change the bank's primary mandate of maintaining currency and price stability and to focus instead on growth. "Parliament believes that the remedial action (recommendation), which is binding in terms of the law, usurps the powers of the institution under the Constitution," it said on its website. Her call threatens to further stain South Africa's image as an investor-friendly emerging market, coming less than a week after mines minister Mosebenzi spooked investors by raising the minimum threshold for black ownership of mining companies to 30 percent from 26 percent.

We saw a slight drift in the dollar this morning  as U.S. Treasury yields stayed low amid fading expectations that the Federal Reserve will hike interest rates again later this year. The dollar index versus a basket of six major currencies was little changed at 97.269 after falling 0.4 percent on Friday. The index had climbed to a one-month peak of 97.871 earlier last week, supported by expectations that the Fed, fresh from a mid-June rate hike, would tighten policy again as early as September. But such expectations ebbed over the course of a week, with investors doubtful of another rate increase this year as U.S. indicators have on balance fallen short of forecasts.

"The main reason behind the weakness of the dollar, which has lost its upward momentum since the Fed rate hike, is U.S. yields stuck at low altitude," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. "Yields appear to better reflect U.S. fundamentals relative to equities, and in focus this week are political developments and the various indicators due for release." U.S. data due this week include the June consumer confidence indicator, pending home sales, crude oil inventories, revised first quarter GDP and the PCE price index. On the political front, the U.S. Senate hopes to vote on a healthcare bill this week to replace Obamacare. But with as many as five Republican senators opposing the bill, getting a vote by the end of this week could be difficult. The Trump administration will find it hard to follow through with tax cuts and fiscal stimulus steps, seen as dollar-supportive factors, without passing the healthcare bill first.

Yields on the benchmark 10-year Treasury note rose briefly after the Fed tightened policy this month, but have drifted lower since as expectations of low inflation continued to boost demand for longer-dated debt. Friday's decline took it closer to a seven-month low of 2.103 percent plumbed on June 14. The greenback was steady at 111.290 against the JPY, held below a near one-month high of 111.790 touched last Tuesday. The euro was effectively flat at $1.1192 after rising on Friday to a four-day high of $1.1209.

On the International data front:

New U.S. single-family home sales rose in May and the median sales price surged to an all-time high, suggesting the housing market had regained momentum. The Commerce Department said on Friday new home sales increased 2.9 percent to a seasonally adjusted rate of 610,000 units last month. April's sales pace was also revised sharply higher to 593,000 units from 569,000 units. "While the data quality of the new home sales report is notoriously poor, the general picture from this report and the existing home sales report is one of solid housing demand in the important spring selling season," said Michael Feroli, an economist with J.P. Morgan. The housing market has been bolstered by continued strong job growth. The unemployment rate fell to a 16-year low of 4.3 percent in May and mortgage rates are still favourable by historical standards.

Range on the day: 12.80-13.00