DAILY MARKET UPDATE - 05 AUGUST 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.9238 | EUR/ZAR 16.6389 | GBP/ZAR 18.1141

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

email: treasury@merchantwest.co.za

Market Data:

05 Aug - SA: Standard Bank South Africa PMI | EC: Final Services PMI | DE: German Final Services PMI | Markit Germany Construction PMI

06 Aug -  DE: Markit Germany Construction PMI | US: JOLTS Job Openings | Fed's bullard speaks on us economy

07 Aug-  SA: Gross Reserves | Net Reserves | SACCI Business Confidence

08 Aug - SA: Gold Production YoY | Mining Production YoY | Manufacturing Production YoY

09 Aug - CH: CPI YoY | UK GDP YoY | UK: Manufacturing Production YoY

Market Commentary:

While the U.S. and China continue to wrestle it out regarding trade tariffs the rest of EM is bearing the brunt of it with ZAR opening 3.5% weaker than a week ago and we have already lost close to 1% during the Asian trading session this morning touching a high of 14.91 with losses broad as the Yuan breaches the technical 7.00 mark against the USD. The next push is likely to take us over 15.00 mark and towards the highs of the year at 15.17 as the next strong resistance level if the sell-off momentum spills over into the rest of the trading day on this risk-off start of the week. Expect to see some selling of USD vs. ZAR at these levels while the markets tests where the next potential ranges could be after a fifth straight day of losses. With ZAR’s close association with China – the local currency is likely to underperform on the back of these developments.  (BNP South Africa). 

It appears to be a sea of red across equity markets this morning with most bourses down through Friday's trade as well as early Asian trade today. Some weak services PMI data out of China and Japan has heightened concerns about the global business cycle fading, and as a result, there is a strong risk-off flavour to financial markets this morning. Tensions are clearly on the rise, and investors are steadily turning more cautious in where and how they invest. The safe-haven JPY has surged stronger in response breaking below 106.00/USD for the first time on a close basis since Mar 2018 in the clearest indication yet that investors are turning very cautious in their behaviour. (ETM).

The South African Government Bond (SAGB) nominal curve bull-flattened intraday despite ZAR weakness, with the 10-year benchmark closing at 8.362%, down 0.3bps. Foreign investor appetite for SAGB’s appears to be dwindling as they sold a further R3.7bn worth of SAGB’s at the end of the week. US Treasury yields extended their week-long slump on Friday as safe haven bond markets rallied on the escalation of U.S. trade tensions following President Donald Trump’s vow to impose additional tariffs on China. The 10-year Treasury note yield fell 2.9 bps to 1.864%, its lowest since Nov. 7, 2016. The benchmark maturity slumped 21.7 bps last week, its biggest such move since June 2012. (ABSA).

Trading Range: 14.70 - 15.05