Daily Commentary - 28 July 2017 | Merchant West

Daily Commentary - 28 July 2017

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

- USD / ZAR 13.0350 - EUR / ZAR 15.2641 - GBP / ZAR 17.0632 -

Economic Events:

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

Market Commentary:

Apologies to our readers for no Brief yesterday, construction workers cut through the internet cable first thing yesterday morning and we spent most of the day with no internet and the entire day with no telephone lines!

Hence today we will do a little bit of a re-cap of the all important FOMC Meeting that took place Wednesday night :As expected the Fed left rates on hold for now. “The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated.”  Adding “relatively soon” to the statement the only tightening focus to a more dovish than expected statement.

The USD did weakened after the statement, EUR/USD moved from 1.1630 to 1.1740, USD/JPY from 112.15 to 111.20.  Most risky markets ended stronger and commodities continued the recent positive run, gold traded at recent highs of 1264 and Brent continues to trade over 50 dollars a barrel. When we walked in on Thursday we saw the Rand testing 12.88 again and many of us expected it to finally break below this current resistance level.

This was not to be as yesterday again as we saw more off-shore selling of the ZAR than buying and the rand slowing climbed from 12.88 to test and hold at around the 13.01/13.02 level.

On the data Front

Yesterday on the local side of things  we saw our headline PPI inflation fell sharply to 4.0% y-o-y in June down from 4.8% in May. This was much lower than consensus (4.4%), with the softer print mainly driven by a continued slowdown in food prices and lower fuel prices but the underlying data across the rest of the basket was somewhat mixed. Food PPI inflation eased further to a multi-year low of 4.7% y-o-y ,down from 5.7% in May and an average of 8.8% y-o-y in Q1.

 

It is too early to tell whether the firming in PPI inflation in other parts of the PPI basket is a once off or represents a trend. We remain comfortable with our view that CPI inflation should continue to ease over the coming quarters, likely reaching a low point of 4.3% y-o-y in early 2018. Moreover, in the absence of any material upside surprises in inflation data, we think the MPC has further room to cut rates by a further 25bp in September, particularly in light of its own inflation projections. (Barclays, Jhb).

Yesterday also saw Japan’s CPI indices ,which remained unchanged across the board in June, with headline at 0.4%, core CPI at 0% and CPI excluding food at 0.4%, in line with forecasts. Japan’s unemployment rate fell to the lowest in 4 decades in June, at 2.8%, from 3.1% previously, better than consensus of 3%. The jobs to applicant’s ratio rose modestly, indicating very tight labour market conditions, which may prompt wage growth.

Today is the last of the three day run on key “market moving data” with nothing major to worry about on the local front but more than enough coming out abroad that will play its’ part on all markets, which most certainly will including the EM currencies. Out of Europe we have French GDP and CPI , from Germany we have CPI per state and preliminary, for the Eurozone we have economic confidence, business climate index, industrial , services and consumer confidence indicators.

But the “BIG ONE” to round off our week is the U.S GDP figures. The market is expected a figure of 2.5% vs. last month’s 1.2%. With this rise expected off the back of better consumer spending which had already been 100% factored in. A print however above say 2.7%/2.8% will bring a bit of short-term confidence back into the Dollars as we close off for the weekend, and hence we do suggest staying close to your trading terminals at 14h30 this afternoon .

Our Range for the Day : R 12.88   -  R 13.05