DAILY MARKET UPDATE - 13 AUGUST 2019

capital markets

Merchant West Capital Markets

USD/ZAR 15.3623 | EUR/ZAR 17.1936 | GBP/ZAR 18.5291

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email: treasury@merchantwest.co.za

Market Data:

12 Aug - US: US Monthly Budget Statement

13 Aug - JN: PPI (m/m) | US: CPI (y/y)

14 Aug-  UK: CPI (y/y) | House Price Index (y/y) | EC: Employment (y/y) | GDP (y/y) | SA:  Retail Sales (y/y) | US: Import Price Index (y/y) | Export Price Index (y/y)

15 Aug - US: Retail Sales Advance (m/m) | Industrial Production (m/m)

16 Aug - No meaningful information

Market Commentary:

South Africa's rand weakened on Monday, stretching losses to a new 11-month low as political uncertainty and a bleak economic outlook was worsened by uncertainty over the chances of a resolution to the trade standoff between Beijing and Washington. At 17h15, the rand was 0.5% weaker at 15.3375 per dollar, its weakest since Sept. 6.The rand hit a session-worst 15.4550 as sentiment toward emerging markets was soured by President Donald Trump saying on Friday he was not ready to make a deal with China and called a September round of trade talks into question. "The rand, as both a commodity and EM currency has weakened on the worsening in the trade relationship between the U.S. and China, due to the implications for global economic growth," said chief economist at Investec Annabel Bishop in a note.

The rand, however, has also been pressured by a souring local economic and political atmosphere. Worries about the impact on the economy of heavily-indebted state-owned energy firm Eskom and negative commentary from credit rating agencies, and an ongoing legal wrangle between President Cyril Ramaphosa and the anti-corruption ombudsman, have seen the rand shed nearly 10% in two weeks. Ramaphosa won the latest round of a legal battle with South Africa's anti-corruption watchdog on Monday, as a judge delayed implementation of findings linked to its claim that he misled parliament about a leadership campaign donation. But the lingering charges and hostility from factions within his ruling African National Congress has raised fears Ramaphosa may distracted from his pledge to revive stalling economic growth.

Bonds were also weaker, with the yield on the benchmark 2026 government issue up 9 basis points to 8.485%.Stocks ended a touch weaker, with the Johannesburg Stock Exchange (JSE) Top-40 index down 0.21% while the broader All-Share index was 0.29% lower, dragged down by global recession fears linked to the U.S.-China trade spat.

Note that overnight Hong Kong stocks have been under some pressure, which could keep pressure on the rand into the local open. From a technical perspective, however, the USD-ZAR market seems to be reaching a top. There has been a crossover sell signal generated from a very overbought stochastic, while a bearish engulfing candle also tends to point to a market that is shifting from bullish the pair to bearish. In terms of the session ahead, note that later in the US session there will be some key inflation data released, which holds the potential to drive fresh market direction. Domestically, a bond auction will be worth monitoring from a market sentiment perspective. Given the discount on the ZAR or premium on the USD out of ZAR, currently evident, it has become increasingly difficult for investors to justify significant further weakness in the ZAR. On the contrary, there may be some short-term value to be found, especially if global levels of risk aversion subside for any reason (ETM).

EM Currencies - Most Asian currencies weakened on Tuesday, as the prolonged Sino - U.S. trade dispute and a free fall of the Argentine peso weighed on investors' risk appetite, while Singapore cutting its full-year growth forecast added more pressure in the region. Signals of a drawn out tussle between the U.S. and China have kept global markets on edge and the lack of any progress in resolving their differences is a major worry for many Asian economies, which count Beijing as a top trade partner.

The prospects of a more aggressive approach by China to tackle the simmering protests in Hong Kong has also triggered a wave of risk aversion across global markets. In Argentina, the local peso weakened more than 15% against the dollar after President Mauricio Macri got thumped in Sunday's primary vote, a stark early warning for the incumbent ahead of the general election in October. Meanwhile, the Singapore government cut its full-year forecast range for gross domestic product as global conditions were seen worsening and data confirmed the slowest growth rate in a decade amid mounting fears of recession in the city-state.

*Information sourced from Reuters.com

Range for the day: 15.20 - 15.50