DAILY MARKET UPDATE - 14 AUGUST 2019

capital markets

Merchant West Capital Markets

USD/ZAR 15.1531| EUR/ZAR 16.9347 | GBP/ZAR 18.2739

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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 firmed on Tuesday, helped by improved risk appetite on signs of easing trade friction after the United States said it would delay tariffs on some Chinese products and both sides agreed to continue talks. Stocks closed slightly weaker, weighed down by the gold sector.

At 17h35 the rand was 1.0% firmer at 15.1525 per dollar. Riskier assets gained on the news, which was viewed as a significant concession in the trade conflict between Washington and Beijing. Despite the improved global risk appetite, a souring local economic and political atmosphere remained a risk to the rand. 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 7% in two weeks.

On Monday, Ramaphosa won the latest round of a legal battle with South Africa's anti-corruption watchdog, as a judge delayed implementation of findings linked to its claim that he misled parliament about a leadership campaign donation. But the lingering charges have raised fears Ramaphosa may distracted from his pledge to revive stalling economic growth.  "The ongoing battle between the Public Protector and the president will continue to weigh on sentiment, further delaying investment decisions and putting more downside risks to our 0.5% growth for the year," RMB analyst Mpho Tsebe said in a note.

The Rand was trading quite bid in the morning/early afternoon – looking to push towards 15.40 but gapped lower on these developments pushing some 20-big figures lower to break below 15.10 at one stage. We are currently trading close to 1% stronger than the week’s open with much of Monday’s move above 15.40 feeling overdone. Our in-house STEER model is signalling for further consolidation towards 15.00. We are likely to see ZAR trade in this 14.50 – 15.50 ranges in the near-term at least with trade escalation/de-escalation very much in play with investors reacting accordingly to the volatility. Expect to see resistance at 15.40 with 15.00 on the downside (BNP Paribas)

Trade Wars - U.S. President Donald Trump on Tuesday backed off his Sept. 1 deadline for 10% tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods, in the hopes of blunting their impact on U.S. holiday sales. The delay which, affects about half of the $300 billion target list of Chinese goods - along with news of renewed trade discussions between U.S. and Chinese officials - sent stocks sharply higher and drew cautious relief from retailers and technology groups. Trump's 10% tariffs will be effective from Dec. 15 for thousands of products including clothing and footwear, possibly buttressing the holiday selling season from some of the fallout from the protracted trade spat between the world's two largest economies.

"We're doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers," Trump told reporters in New Jersey. "Just in case they might have an impact on people, what we've done is we've delayed it so that they won't be relevant to the Christmas shopping season. “The U.S. Trade Representative's Office announced the decision just minutes after China's Ministry of Commerce said Vice Premier Liu He conducted a phone call with U.S. trade officials. Liu agreed with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to speak again by phone within the next two weeks, the ministry said. Trump has said the two sides may still meet in early September as scheduled.

International data front - The mood among German investors plummeted in August to its most pessimistic since the peak of the euro zone debt crisis, a leading survey showed on Tuesday, heightening concerns that Europe's biggest economy is heading for recession. The sharp drop in the monthly ZEW survey, blamed on trade conflict and uncertainty over Brexit, sent German blue-chip shares to an intraday low as it prompted investors to switch into safer assets like government bonds. Economic sentiment among investors fell to -44.1 from -24.5 in July, its lowest since Dec. 2011 and way short of expectations for a dip to -28.5.

"The ZEW survey gives a further clear warning signal of recession for the German economy," said Uwe Burkert, chief economist at LBBW Research. Traditionally driven by strong sales of its products abroad, Germany's economy has this year increasingly relied on domestic demand to spur growth as exports, led by manufactured goods, have been hit by a broad-based downturn and tariff disputes that have acted as a brake on global trade. Data on Wednesday is expected to show German gross domestic product shrank marginally quarter on quarter between April and June, and economists are scaling back their already modest forecasts for the third quarter.

*information provided by Reuters

Range for the day: 15.00 - 15.25