DAILY COMMENTARY - 9 MAY 2019

Merchant West Financial Services Company

Merchant West Capital Markets

USD/ZAR 14.3501 | EUR/ZAR 16.0665 | GBP/ZAR 18.6680

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JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

Market Data:

9 May - CN Chinese CPI & PPU Data | SA - Mining Production & Manufacturing data | US - PPI Final Demand | Trade Balance 

10 May - GB UK GDP, Manufacturing Prod & Trade Balance | US CPI Data

Market Commentary:

Early voting results with just over 24% of the votes counted as of 08:45 – the ANC holds between 54-55% followed by the DA at 26-27% and the EFF at a touch over 8%. In a day filled with drama, challenging weather and alleged irregularities which influenced voter turnout – the people have spoken and now we wait for the final results which are due by the weekend (delays can be expected with challenges likely in some areas). The highly contested Gauteng region has had about 13% of the votes counted and the ANC holds between 51-52%. What are the markets doing? Some nerves can be expected going into the trading day and for the rest of the week as the results trickle in. The Rand is currently holding onto 0.9% gains for the week thus far trading at the R14.31 handle. While the elections results are set to dominate local sentiment – the U.S./China break down in trade talks is likely to add to the volatility for EM and evidently affecting ZAR with the U.S. Dollar holding steady at the week’s highs. We remain open to two-way risk in an elevated volatile environment – expect headline trading to be choppy with any rallies limited. We should find some strong resistance at the R14.50/60 levels and R14.20 on the support side (BNP Paribas).                            

Asian shares fell to eight-week lows on Thursday as investors waited to see whether Chinese and U.S. trade negotiators can salvage a deal to stave off the threat of fresh U.S. tariff increases, which would damage global economic growth. Chinese Vice-Premier Liu He is set for talks in Washington on Thursday and Friday with U.S. officials who have complained that Beijing has backtracked on earlier commitments. An agreement could avert a sharp increase in U.S. tariffs on Chinese goods that President Donald Trump has threatened to impose on Friday. China has threatened to retaliate, raising the risk of a major escalation in the bruising trade war between the world’s two largest economies. “If Trump’s threat becomes reality, it will be a game changer for the global economy. This is the worst-case scenario we modelled last year that resulted in recession conditions in the United States, a rapid reduction of growth in China, and slower global trade,” said Steve Cochrane, chief APAC economist at Moody’s Analytics in Singapore. European stocks are set to open lower, with pan-region Euro Stoxx 50 futures down 0.5 percent, and German DAX futures down 0.4 percent, and FTSE futures 0.3 percent lower in early trade (Reuters.com).

In the currency market, sterling weakened on signs that Brexit talks between Britain’s government and the main opposition party may soon collapse. The pound fell below the psychologically key $1.30 level, touching a six-day low overnight, and last traded at $1.3019. The dollar index against a basket of six major peers was down 0.06 percent at 97.561, with other major currencies also confined to well-trodden ranges. The euro was little changed at $1.1194 and the Japanese yen edged up 0.2 percent against the greenback to 109.92 yen. In the commodity market, oil prices dropped on Thursday amid concerns over the escalating Sino-U.S. trade battle, despite a surprise fall in U.S. crude stockpiles (Reuters.com).

Range for the day: 14.25 – 14.55