DAILY MARKET UPDATE - 28 JUNE 2019

markets commentary

Merchant West Capital Markets

USD/ZAR 14.1338 | EUR/ZAR 16.0951 | GBP/ZAR 17.9213

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email: treasury@merchantwest.co.za

Market Data:

28 June - UK: GDP (y/y) | Current Account Balance | SA: South Africa Budget | Trade Balance Rand | US: Personal Income | Personal Spending

Market Commentary:

The Rand continues to trade well breaking below 14.15 yesterday after gaining 0.35% to take the week-to-date wins to 1.4% which is an outperformer in terms of spot returns vs. its EM peers as continue to trade below key levels. There is a sea of green across the board for EM currencies vs. the U.S. Dollar for the month of June with ZAR threatening to test 14.10 then the 14.00 handle although any rallies are likely to be limited in this thin liquidity and cautious market going into the G20 weekend. Investors seem to have brushed off local recent developments and will be on the lookout for the U.S. and China trade talks with downside risk in play for ZAR and EM broadly. In our view, the eurozone is facing more than just a cyclical slowdown; it faces a comprehensive challenge to its post-crisis export-led growth model. We therefore maintain our negative view on eurozone growth, even in the absence of any further escalation in the US-China trade conflict or other major risks such as a no-deal Brexit or US car tariffs. We do not expect the economy to return to its past trend growth rate as persistent uncertainty has affected confidence and manufacturing weakness is hurting the wider economy.  We think the ECB will have to deliver 10bp of cuts in September, and the lack of improvement in growth bolsters the case for more easing later on (BNP Paribas).

The Rand continued its rally yesterday, extending gains vs the dollar, along with other emerging market currencies with the Rand being the best performer of the EM basket. The local unit reached a low of R14.1325/$ before closing the day at R14.1688/$. The move lower is a result of investors positioned themselves for the upcoming G20 summit as well as renewed optimism for that a trade deal will be reached between the US and China. Yesterday’s release of South Africa’s May PPI figures did not surprise too much, coming in slightly higher than expectation at 6.4% YoY. Key data releases for the today include UK GDP for Q1, US Consumption data and local South Africa Trade Balance. The yields on the South African Government Bonds (SAGBs) decreased once again across most maturities yesterday. The 10-year benchmark bond (R186) was down 0.5bps to close the day at 8.111%. U.S. Treasury yields dropped due to new optimism that the US and China would reach a trade deal at the G20 summit. The 10-year Treasury note yield fell 3.3 bps to 2.015% (ABSA).

Range for the Day: 14.05 – 14.30