DAILY MARKET UPDATE - 12 JULY 2019 | Merchant West


markets commentary

Merchant West Capital Markets

USD/ZAR 13.9164 | EUR/ZAR 15.6816 | GBP/ZAR 17.4613

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email: treasury@merchantwest.co.za

Market Data:

08 July - US: Consumer Credit

09 July - US: NFIB Small Business Optimism | JOLTS Job Openings

10 July - UK: GDP | Industrial Production y/y | Manufacturing Production y/y| Trade Balance | US: MBA Mortgage Applications | FOMC Meeting Minutes | Fed's Bullard To Speak

11 July - SA: Mining Production | Gold & Platinum Production | US: CPI (y/y) | Initial Jobless Claims | Monthly Budget Statement

12 July - EC: Industrial Production WDA (y/y) | US: PPI Final Demand (y/y)

Market Commentary:

The rand is on track to end the week comfortably below the USD/ZAR 14.00 handle, as the weaker U.S. dollar continues to drive demand for emerging market currencies. “South Africa’s rand strengthened on Thursday after the chairman of the Federal Reserve set the stage for a U.S. interest rate cut later this month, weakening the dollar and boosting risk appetite worldwide” (source: Reuters). According to an article by Bruce Whitfield published in Business Insider SA, the rand has powered to its best levels against the US dollar in five months, breaking through the R14/$ level this week – more because the greenback is weak than the rand is strong. Either way, your global buying power has improved substantially and if The Economist’s Big Mac Index is any indicator, the rand could be poised for even greater gains – but only if SA’s damaging domestic political issues lose prominence.

In the U.S. market, “The dollar was steady on Friday, having regained some traction against its peers after stronger-than-expected U.S. inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut later this month. The core U.S. consumer price index excluding food and energy components rose 0.3% in June, the largest increase since January 2018, data on Thursday showed. The signs of a pick-up in underlying inflation, along with separate data on weekly jobless claims showing the labour market remained solid, curbed financial market expectations of a more aggressive 50 basis point cut at the Fed’s July 30-31 meeting. Markets are still fully priced for a quarter percentage point cut as U.S. policymakers seek to support a slowing economy” (source: Reuters).

In the European markets, “The Bank of England said the risks of a no-deal Brexit have increased and warned that such an outcome could slam the pound, government bonds and house prices. In its Financial Stability Report on Thursday, it said that “significant market volatility and asset price changes are to be expected in a disorderly” withdrawal from the European Union. It also sees a risk of “material economic disruption.”  Also, “The European Commission cut its euro-area growth and inflation forecast for next year as trade tensions and policy uncertainty weigh on the region, strengthening Mario Draghi’s case for further stimulus measures” (Source: Bloomberg).

Range for the day: 13.85 - 14.10