Daily Commentary - 27 June 2018

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

USD / ZAR 13.6313 - EUR / ZAR 15.8834 - GBP / ZAR 17.9903 -

Economic Events:

27 June: EC Money Supply - US MBA Mortgage Applications, Advanced Goods Trade Balance

28 June: GE CPI Data - SA PPI Data - US GDP and Jobless Claims

29 June: UK GDP - EC CPI Data - SA Trade Balance and SA Budget - US University of Michigan Sentiment

Market Commentary:

Local front:

The rand was firmer against major global currencies on Tuesday afternoon, as volatility subsided along with market concern over the implications of the US-China trade conflict.

On Monday, US officials moved to reassure the market that a list of investment restrictions to be published later this week would be less severe than markets expected.

Investors seemingly took the opportunity to buy at lower prices after the recent sell-off of emerging-market assets, with most of the rand’s peers firmer on the day.

Analysts were, however, circumspect, saying the market continued to price in slower economic growth as a result of tit-for-tat tariff action between the US and its trading partners.

Risk aversion remained the foremost issue for the market, and the dollar looked set to continue to be one of the biggest beneficiaries of the safe-haven shift by investors, Oanda analyst Craig Erlam said.

As of Tuesday afternoon, the rand had lost 9.45% against the dollar in 2018, compared to losses of 22.36% and 45.68% for the Turkish lira and Argentinian peso, respectively.

Local data again took the back seat on the day, with Statistics SA saying earlier that employers added 56,000 staff to their payrolls in the first quarter, a 0.8% increase year on year.

“Given just how poorly the manufacturing and construction sectors have performed, we are sceptical that the job gains in these two industries can be sustained," said FNB senior economic analyst Jason Muscat. (Business Day)

International front:

The dollar held steady against a basket of currencies early on Wednesday, its earlier bounce from two-week lows flagging amid lingering trade conflict concerns. The dollar index against a basket of six major currencies was steady at 94.652 after gaining 0.4 percent overnight to snap a four-session losing run. While a modest easing in concerns over an escalating trade row between the United States and its trade partners had lifted the dollar off a two-week trough of 94.171, wariness lingered and capped the dollar. Underlining investor caution, equity markets in Asia extended losses and slipped across the board on Wednesday. "The spat is beginning to have an actual impact on corporate behaviour and this is the difference from the earlier stages of the trade row," said Koji Fukaya, president at FPG Securities in Tokyo. "The 'risk off' trend has started to impact corporations in the developed markets, clouding the outlook for their economies and suppressing dollar demand." "The dollar lacks guidance from U.S. yields, which have been directionless. Furthermore, it is difficult to gauge whether the Trump administration is poised to become even more conservative towards trade issues or if it wants to ease its stance," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The dollar was 0.1 percent lower at 109.92 yen, after going as high as 110.23 on Tuesday. The yen is often sought in times of market turmoil and political tensions.

The euro was a shade higher at $1.1657 after losing 0.5 percent overnight, when a rise in Italian bond yields ahead of debt auctions later this week soured sentiment towards the single currency. Italy will sell five- and 10-year bonds on Thursday, with the auctions seen as a test of investor appetite for the country's debt following the political turmoil that gripped Rome last month.

Sterling was effectively flat at $1.3224. The pound had dropped 0.45 percent on Tuesday after an incoming Bank of England policymaker expressed caution over Britain's readiness for higher interest rates and uncertainty over the impact of Brexit on the economy.  (Reuters)

Our range for the day : R 13.5000 - R13.70000