Daily Commentary- 31 May 2018 | Merchant West

Daily Commentary- 31 May 2018

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

USD / ZAR 12.4691 - EUR / ZAR 14.5999 - GBP / ZAR 16.6231 -

Economic Events:

31 May : CH Manufacturing PMI - SA PPI Data ; Trade Balance - EC CPI Estimate - US Initial Jobless Claims

1 June : EC Eurozone Manufacturing PMI - SA Manufacturing PMI - US Change in Nonfarm Payrolls ;ISM Manufacturing

Market Commentary:

It’s the last day of a rather interesting month. The $/R 12.15 level broke on  the 23rd Apr. and May was certainly a month that saw far more opportunity for local Exporters to smile again, but there really was a little in it for everyone. Massive moves in both directions that never seemed to last for more than a day or two, and we still seem to be battling to catch our breath with local politics for once hardly playing any part of the fun and games we’ve all been subjected to.

And yes perhaps politics is the best measurement of what the currency markets will do. Two/three days ago it was panic stations in respect the worlds’ 4th biggest bond market country being in political turmoil. Italy certainly cause a huge clear-out of long €/$ positions, however here we are not even at the end of the week and already the bulls are back, with the Euro performing brilliantly yesterday. From the low of €/$ 1.1520 it has clawed its’ way back to close in N.Y. last night at €/$ 1.1668, with this push of the Euro yesterday also helping to fuel the moment out of the Dollar into other currencies too, and the Rand certainly was one of those to benefit.

Yesterday we opened around  $ /R 12.68, tested 12.7360 in Asian before we officially started our day but from there all we saw was a steady buying of the Rand by the off-shore market as we slowly but surely work our way all the way down to 12.5150, this price we were managing to get literally as we were leaving the office yesterday, which didn’t change by even 100 basis points by the close in N.Y. 6hr later.

On the data front S.A. Budget data was released. Our deficit in April was slightly wider than expected, at ZAR43.7bn, about 42% larger than the deficit recorded in April 2017 and bigger than our forecast of ZAR38.1bn. Although the data is only for the first month of the fiscal year (and therefore do not say anything about the trend under the new budget), revenue and expenditure trends do not look very comforting, in our view, especially given that this fiscal year’s public-sector wage increases are due to be implemented amid ongoing wage talks. Revenues rose 8.5% y-o-y, but expenditures surged 19.5% y-o-y, after very subdued growth in the last two months of the last fiscal year, possibly suggesting that some expenditure was postponed in the end of FY17/18, possibly intentionally with the aim of capping last year’s deficit numbers. The fiscal data bear close watching, given that they may signal whether the previous year’s fiscal shortfall largely reflected compliance issues (which could be turned around fairly quickly under the new leadership of SARS) or are the cumulative effect of poor economic performance, with companies carrying forward deductible losses and individuals, particularly in the high-paying financial services sector, earning smaller bonuses. (ABSA).

Today sees the release of SA April PPI figures and it is expected to see a small rise in the numbers from March 3.7% to 3.8%.

Our Range for the Day :-    12.40   -   12.55