Daily Commentary - 31 July 2018

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

USD / ZAR 13.1758 - EUR / ZAR 15.4372 - GBP / ZAR 17.3064 -

Economic Events:

31 July : CE CPI Estimate -EC GDP Data - SA Unemployment ;Trade Balance

01 August: SA Manufacturing PMI - US MBA Mortgage Applications ;Manufacturing PMI; FOMC Rate decision

02 August: EC PPI Data - UK BOE Rate Decision - US Initial Jobless Claims

03 August  : SA PMI Data - EC PMI Data ;Retail Sales - US Trade Balance ;Change in Nonfarm payrolls

Market Commentary:

The new week opened with the rand trading in the lower $/R 13.20 level, and all in all had a rather quiet day with most of the activity happening once the U.S. opened, when we saw some off-shore buying and by mid-afternoon was testing the low of the day  -   $/R 13.1325, with the key 13.10 level again yesterday still remaining just a stone throw too far .

The markets are definitely very skittish at present with today seeing the first of three major central banks announcing its decision and guidance on monetary policy. The BoJ is up first, with the FED on Wednesday night and then on Thursday it’s the turn on the BoE. We are expecting no change once again out of Japan, plus know already that the FED won’t be hiking and it does feel, of these three meeting, that the BoE is the one the promises to be the most eventful. But for the general USD/ZAR market, what report get delivered by Jerome Powell, the Federal Reserve Bank Governor, is without question massively key in respect to both the two major meetings that the FED has left in this year  - (Sept. and then Dec.).

Friday saw the U.S. releasing its’ 2Q GDP figures and President Donald Trump was beside himself with joy, like a kindergarten kid who just won 1st prize in the Christmas pageant. He called the figures “terrific” and was extremely positive as to what the future holds as he delivered the report on Friday afternoon.   4.1% vs.  the 1Q 2.2% is indeed quite impressive, and the whole world did certainly look on, a little nervous in respect to this remarkable growth. It does now beg the question as to whether the FED can and will still hike twice?  The risk of the dollar strengthening too aggressively has now been increased quite substantially and hence the market is waiting patiently to see what Jerome Powell will have to say.  Will the Dec. hike get held over to 2019, or does the Sept. hike get postponed to Dec. or is it still full steam ahead?

Today also sees the release of a lot more figures, with this week a little overloaded when it comes to all the announcements.  Locally we have unemployment and Trade Data, from Europe - German Retail sales and CPI, for the zone unemployment, CPI and GDP, from the U.S. personal income, personal spending, PCE, Chicago PMI and consumer confidence index.

Eskom also continues to raise some concern, but to be honest it is more like a back page small print item, as it continues to deal with the effects of protracted labour negotiations and strikes, with the country still seeing minor disruptions to electricity supplies in scattered areas.

Our Range for the Day  :    13.1000    -    13.2500