DAILY MARKET UPDATE - 02 AUGUST 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.7076 | EUR/ZAR 16.3236 | GBP/ZAR 17.8375

Please feel free to contact us on the details below:

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

email: treasury@merchantwest.co.za

Market Data:

29 July - EC: Economic Confidence | SA: South Africa Unemployment | South Africa Budget | US: Personal Spending

30 July - No meaningful data

31 July - US: MBA Mortgage Applications | SA: Trade Balance Rand | Trade Balance Rand | US: FOMC Rate Decision (Lower Bound)

01 Aug - EC: Markit Eurozone Manufacturing PMI | UK: Markit | PMI Manufacturing: Bank of England Bank Rate | SA: Absa Manufacturing PMI  

02 Aug - US: Change in Nonfarm Payrolls | Unemployment Rate | Trade Balance

Market Commentary:

Reuters) - South Africa’s rand gained early on Friday after three straight sessions of falls, as the dollar’s recent rally was halted by resurfacing trade tensions between the United States and China. At 0820, the rand was 0.31% firmer at 14.6150 per dollar from a close of 14.6600 overnight, pausing a slide that has seen the currency shed close to 4% as a more hawkish than expected tone struck the U.S. central bank hit emerging markets. S.A manufacturing surprised to the upside yesterday at 52.1 pts from 46.2 in June and consensus was 46.5pts. This is the first rise for the year and the best in 3 years, however, sentiment amongst manufacturers may not be sustainable. Bonds were weaker as foreigners sold close to R4bn in value yesterday and with negative global sentiment, this might lead to more offshore selling. The yield on the benchmark 10-year government issue rising 2.5 basis points to 8.4%. Markets are clearly now in a risk-off environment and the rand is expected to remain weak and vulnerable with a 27% probability of the rand touching 15.00 in the 1 week period.

In U.S Markets (Reuters) - Global stocks took a beating on Friday, with investors piling into safe-haven assets but oil prices recouped some losses after U.S. President Donald Trump said he would slap a 10% tariff on the remaining $300 billion of Chinese imports starting Sept. 1. U.S. stock futures extended losses, dropping 0.2%, following the S&P 500 skidding 0.9% to hit one-month lows overnight. Oil prices rose more than 2%, after suffering their biggest one-day fall in years the previous day following further U.S. tariffs on China, intensifying trade tensions between the world’s two biggest economies and crude consumers. Trump’s announcement, which came a day after U.S. and Chinese negotiators concluded a meeting in Shanghai without significant signs of progress, marks an end to a truce in the trade war struck in June and could further disrupt global supply chains. China’s state media quickly denounced Trump’s new tariffs, with the editor in chief of the Global Times saying on Friday that a trade deal between the United States and China was now “further away.” The war of words appeared to escalate after U.S. Secretary of State Mike Pompeo said “decades of bad behavior” from China had hampered free trade and prompted tariffs and other action from Washington. The proposed levies triggered a stampede for safe-haven assets, including U.S. bonds, gold and the yen, while the Chinese yuan and the Australian dollar hit multi-month lows. The 10-year U.S. bond yield fell almost 12 basis points on Thursday to 1.902 percent, hitting the lowest since Nov. 8, 2016, when Trump won a surprise victory in the presidential election. The 10-year yield extended its slide to as low as 1.875% in early Asian trade. Trump’s decision has thrown the Federal Reserve another curve ball that may force it to again cut interest rates to protect the U.S. economy from trade-policy risks after its first rate cut in more than a decade on Wednesday. The October Fed funds rate futures have jumped to now fully price in a rate cut in September, compared with only around 60% before the tariff announcement. Another 25 basis point move is priced in by December.

In European markets - The British pound edged toward a 30-month low versus the dollar due to persistent worries about a no-deal Brexit and a cut in the Bank of England’s economic forecasts. Sterling was last 0.1% lower on the day at $1.2110. The BOE kept rates unchanged and noted that interest rates would need to rise in order to bring inflation to target. The euro weakened to a 26-month low of $1.1025, and sterling touched a 30-month low of $1.2077. However, both the euro and the pound were gripped by their own issues. You want to stay short euro and sell the rallies,” said Stephen Gally, European head of forex strategy at BMO Capital Markets. Data from the Commodity Futures Trading Commission shows that hedge funds have been doing just that. Short euro positions increased to $5.44 billion in the week to July 26. Investors expect the European Central Bank to take a more aggressive stance on monetary policy easing than the Fed, which would dampen appetite for the common currency. Fears that Britain may exit the European Union on Oct. 31 without transitional trade agreements in place hurt sterling and the euro. The euro was last down 0.13% at $1.1059.

Trading range: 14.40-14.85