Daily Commentary - 6th June 2018 | Merchant West

Daily Commentary - 6th June 2018

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

USD / ZAR 12.8250- EUR / ZAR 15.0782 - GBP / ZAR 17.1992 -

Economic Events:

06 June : US MBA Mortgage Applications ;Trade Balance

07 June : EC GDP - SA Manufacturing Production - US Initial Jobless Claims

08 June: GE Trade Balance

Market Commentary:

Optimism has been fuelling the markets since President Cyril Ramaphosa took over the reigns of South Africa from the embattled former president. Due to his business-friendly approach to leadership, a significant portion of the rand`s recent strength has been attributed to the “Ramaphoria”. However, markets took a turn yesterday when the economic reality set in and highlighted the challenges facing South Africa. According to data released by Statistics South Africa yesterday, the local economy contracted by 2.2% over the first quarter with mining, manufacturing and agriculture coming out the worst. The negative growth, along with other political hurdles will increase the pressure on the rand and could force the SARB to adopt a less-hawkish policy stance.

In the US market, the dollar strengthened on the back of stronger than expected jobs and wage data released last Friday, raising the probability of a further two interest rate hikes for the year. Despite the recent rally, the dollar appears to have been drawn to a halt following a more stable euro and a global trade war still looming in the background, providing some relief for emerging market currencies. Following the imposition of tariffs on European countries, President Donald Trump`s administration has since also imposed tariffs of steel imports from Mexico, with Mexico retaliating with duties on agricultural products.

In the European market, the common currency has been on a slow path to recovery as political fears stemming from Italy faded, after markets received reassurance that the newly instated government does not plan to leave the euro zone. Markets will be shifting their focus towards the upcoming European Central Bank policy meeting, where an announcement concerning the end of the quantitative easing program is expected to be made. “In remarks that come ahead of next week’s closely-watched meeting, Peter Praet said the underlying strength of the euro area economy persists and that inflation expectations are increasingly consistent with the bank’s aim” (source: Reuters).

In the UK market, the pound has been drawing support from the marginal strengthening of the British economy. “The IHS Markit/CIPS services purchasing managers’ index (PMI) rose to a three-month high in May, better than forecast in a Reuters poll of economists” (source: Reuters). However, the future of the pound remains fragile as uncertainty surrounding Brexit still hangs over the economy.

Range of the day:  R12.68  -  R12.93