DAILY MARKET UPDATE - 13 JUNE 2019

daily markets commentary

Merchant West Capital Markets

USD/ZAR 14.9050 | EUR/ZAR 16.8449 | GBP/ZAR 18.9071

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Market Data:

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 weakened against the dollar on Wednesday, extending earlier losses after mixed local data and the anti-graft ombudsman's calls for President Cyril Ramaphosa to respond to findings from an investigation into a bribe scandal. At 17h23, the rand was almost 1% weaker at 14.8200 per dollar compared to a close of 14.6750 overnight in New York.This morning the Rand now traded around the 14.9100 level.The rand struggled while other emerging market currencies including Brazil's real and the Mexican peso were benefiting from hopes the Federal Reserve wouldn’t raise interest rates after data showed U.S. inflation was barely changed in May.

Although South African retail sales data published on Wednesday showed a pick-up in sales growth in April, retail inflation fell below its March level reflecting a constrained spending environment, also highlighted by the Bureau for Economic Research in its business confidence index for the second quarter, Investec said in a note. Meanwhile, an investigation into a campaign donation received by Ramaphosa from a company implicated in graft hit the headlines after publication of a letter in which the anti-graft watchdog explains Ramaphosa has until June 21 to respond to the preliminary findings of the investigation, which will be finalised after he does so. Ramaphosa's office said in a statement on Wednesday on its website that he remained committed to fully cooperating with the investigation and ensuring it was swiftly concluded.

"We expect the uncertainty about the impact of Mkhwebane's investigation on Ramaphosa's reform drive to continue to weigh on the rand in the next few days, with the USD/ZAR potentially surpassing the 14.88 resistance level," Juri Kren, of Continuum Economics, said in a note. Stocks were also down after the United States took a tough line on trade talks with China, triggering a dip in global equities. The Johannesburg Stock Exchange's benchmark Top-40 Index fell 0.07% to 52,619.43 points while the broader All-Share Index dipped 0.1% to 58,706.35 points. Tobacco company British American Tobacco was among the biggest losers on the blue-chip index, dropping 3.12% to a 17.85 rand share price after warning of steeper sales declines globally due to waning demand for tobacco.

US Data Front - U.S. consumer prices barely rose in May as a rebound in the cost of food was offset by cheaper gasoline, pointing to moderate inflation that could increase pressure on the Federal Reserve to cut interest rates this year. The Labor Department said on Wednesday its consumer price index edged up 0.1% last month. The CPI gained 0.3% in April. In the 12 months through May, the CPI increased 1.8%, slowing from April's 1.9% gain. Economists polled by Reuters had forecast the CPI would rise 0.1% in May and 1.9% year-on-year.

Excluding the volatile food and energy components, the CPI nudged up 0.1% for the fourth straight month. The so-called core CPI was held down by a sharp decline in the prices of used motor vehicles and trucks as well as medical care products. In the 12 months through May, the so-called core CPI rose 2.0% after advancing 2.1% in April. A report on Tuesday showing core producer prices advancing solidly for a second consecutive month in May had offered hope for a firmer core CPI reading in May, as well as in the inflation measure tracked by the Fed for monetary policy.

Fed Chairman Jerome Powell said last week that the central bank was closely monitoring the implications of the trade war on the economy and would "act as appropriate to sustain the expansion." A rate cut is not expected next Wednesday. The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index, increased 1.6 percent in the year to April after gaining 1.5% in March. Data for May will be released later this month. The core PCE price index has been running below the Fed's 2% target this year.

Local Data Front - South African retail sales rose 2.4% year-on-year in April after rising by a revised 0.1% in March, Statistics South Africa said on Wednesday. On a month-on-month basis, sales were up 0.8%. They rose 1.3% in the three months to the end of April compared with the same period last year, the statistics body said.

*Information from Retuers.com

Range for the day: 14.80 – 15.05