DAILY MARKET UPDATE - 10 JUNE 2019 | Merchant West

DAILY MARKET UPDATE - 10 JUNE 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.9225 | EUR/ZAR 16.8553 | GBP/ZAR 18.9811

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Market Data:

10 June - UK:  GDP m/m | Trade Balance | Manufacturing Production (y/y)

11 June - SA: Manufacturing Prod NSA (y/y) | Manufacturing Prod SA (m/m) | US: PPI Final Demand (y/y)

12 June - EU: ECB President Draghi Speaks in Frankfurt | SA: Retail Sales Constant (y/y) | Retail Sales (m/m) | US: CPI (y/y) | Monthly Budget Statement

13 June - SA: Mining Production y/y & m/m | Gold Production y/y | Platinum Production | BER Business Confidence

14 June - US: Retail Sales Advance | Industrial Production | Manufacturing (SIC) Production  

Market Commentary:

South Africa's rand firmed in afternoon trade on Friday thanks to a weakening U.S. dollar, but the local currency was on track to end the week on a weaker footing after a row over the central bank's mandate rattled investors, while stocks also gained. At 17h00, the rand was 0.58% firmer at 14.9075 per dollar, as the greenback fell on weak U.S. jobs data that boosted expectations the Federal Reserve would cut interest rates this year. But the recovery was not strong enough to erase huge losses suffered in the week, after a public spat among senior ruling African National Congress officials over the Reserve Bank's mandate added to the bad news of a contraction in the economy. The currency had weakened to a session low of 15.1750 earlier on Friday, its weakest since September 2018, bringing losses since Monday to 5%. "Matters could well have been even more severe for the rand if this was a week where the greenback remained strong in global markets," said Lukman Otunuga, analyst at futures brokerage FXTM. The central bank mandate row has exposed deep divisions within the ANC. A group loyal to President Cyril Ramaphosa opposes calls from a rival faction for the bank to do more to boost employment and kick-start growth in the country's ailing economy. Data on Tuesday showed first-quarter growth contracted 3.2%, the most in a decade, almost immediately followed by the ANC's announcement that it wanted the bank to consider quantitative easing to lower government debts, sending the rand crashing. In fixed income, the yield on the benchmark 10-year government bond was down 1.5 basis points at 8.455%. On the bourse, stocks closed stronger with the broader All-share index up 1.77% at 58,099 points, while the Top-40 index rose 1.94% to 51,976 points (Reuters.com).

International Data Front - U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year. The broad cool-off in hiring reported by the Labor Department on Friday was before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record. labor market thus far has been largely resilient to the trade war with China. “Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts," said Joseph Song, an economist at Bank of America Merrill Lynch in New York. Nonfarm payrolls increased by 75,000 jobs last month, the government said. It was the second time this year that job gains dropped below 100,000. Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. "The weakness in job growth was broadly experienced across industry groups and not obviously driven by distortions such as weather or strikes," said Michael Feroli, an economist at JPMorgan in New York. U.S. House of Representative Speaker Nancy Pelosi, a Democrat, said the employment report was "a disturbing sign that the administration's disastrous special interest agenda is hollowing out our economy." Following the report financial markets priced in a rate cut as early as July and two more later this year. Economists, however, believe the Fed will probably wait for more signs of labor market weakness and clarity on the trade issues before easing monetary policy. Fed officials are due to meet on June 18-19. "Fed officials are likely to remain cautious at the June meeting and keep all their options open," said Michael Hanson, head of global macro strategy at TD Securities in New York (Reuters.com).

The Mexican peso jumped against the dollar on Monday after the United States and Mexico struck a migration deal late last week to avert a tariff war, providing some much-needed relief to fragile market sentiment. The Mexican peso rose 2% to 19.2275 pesos per dollar after trading resumed for the first time after Mexico agreed on Friday to expand along the entire border a programme that sends migrants seeking asylum in the United States to Mexico. U.S. President Donald Trump had threatened to impose 5% import tariffs on all Mexican goods starting on Monday if Mexico did not commit to do more to tighten its borders. “We all knew that Donald Trump was unpredictable, but this was taking it to a whole new level," said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone."This was political, it was social. It meant that financial markets had to wear a higher risk premium." (Reuters.com)

Range for the day: 14.80 - 15.05