Daily Commentary - 27 August 2018 | Merchant West

Daily Commentary - 27 August 2018

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

USD / ZAR 14.5393 - EUR / ZAR 16.5860 - GBP / ZAR 18.5126 -

Economic Events:

27 August: GE Retail Sales

28 August: US Advanced Goods Trade Balance - EC Money Supply

29 August:GE Consumer Confidence -US Pending Home Sales ;GDP

30 August: SA Money Supply; PPI; SA Budget -GE Unemployment Change - EC Economic Confidence -GE CPI- US Initial Jobless Claims

31 August  : CH Manufacturing PMI - EC Unemployment rate - SA Trade Balance

Market Commentary:

The rand has been known for its unpredictable nature and its ability to rapidly generate volatility, leaving market participants unable to accurately formulate a view on the local unit`s direction. Having narrowly survived the onslaught over recent weeks from various avenues, ranging from a potential global trade war, waning demand for emerging market assets and poor economic performance on the domestic front, the rand seemed to slowly retrace its way back. However, just as the rand began to recover, a single tweet from US President Donald Trump dealt the unit another blow. The tweet subdued the rand`s momentum as speculation pointed towards possible sanctions from the US. In the local bond market, “South African bonds suffered twice the outflows of the next worst-hit emerging market at the height of the Turkey crisis as foreign investors scrambled to reduce volatility in their portfolios against a backdrop of rising economic risk” (source: Reuters). According to a Reuters poll of economists, South Africa is facing a one in three chance of a recession this year, and a separate poll found that emerging market currencies are unlikely to rebound before 2019. On the JSE, the Top 40 traded up 1.17%, and the All Share up 1.02%.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, traded down 0.1%. “The dollar’s safe-haven appeal dimmed on Monday after risk sentiment in the broader markets improved following a well-received speech from Federal Reserve Chairman Jerome Powell” (source: Reuters). “In his speech, Powell simply made the case that gradual rate hikes are the best way to protect the U.S. economic recovery and keep job growth as strong as possible and inflation under control” (source: Reuters). His speech followed earlier criticism by President Donald Trump, citing higher borrowing costs in the US economy. Markets will closely follow the dollar as the prevailing bullish sentiment begins to fade.

In the European markets, the euro remained relatively stable after weakening earlier in the previous week, with the pound losing ground as fears of a no-deal Brexit began to materialise. Markets have already priced in this probability and the sentiment for the pound`s future is growing increasingly bearish. “Britain’s Brexit minister Dominic Raab this week said London can get a trade deal before an informal October deadline, but has also laid out the government’s plans in the case of a no-deal exit” (source: Reuters).

Our range for the day : R 14.2000 – R14.45000