DAILY MARKET UPDATE - 3 JUNE 2019 | Merchant West


capital markets

Merchant West Capital Markets

USD/ZAR 14.5850 | EUR/ZAR 16.2893 | GBP/ZAR 18.4376

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JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

Market Data:

3 JUNE - SA - ABSA Manufacturing PMI | Naamsa Vehicle Sales (y/y) | US - Markit US Manufacturing PMI | Fed's Bullard Speaks in Chicago

4 JUNE - EU - Unemployment rate | SA - GDP Annualized (q/q) | GDP (y/y)

5 JUNE - SA - SACCI Business Confidence | EU - Retail sales

6 JUNE - SA - Current Account Balance | Electricity Production & Consumption | EU - Main refinancing rate | US - Trade Balance | Initial Jobless Claims

7 JUNE - SA - Gross Reserves & Net Reserves | US - Change in Nonfarm Payrolls | Unemployment rate

Market Commentary:

A slow start to week, with the market keeping an eye on GDP numbers on Tuesday and current account numbers on Thursday. Then we have non-farm payrolls on Friday. So expect a choppy week ahead with USDZAR moving potentially below the key level of 14.50 or pushing back to the 14.80/90 area. All depending on the data this week. Trump also hitting the headlines again, regarding trade policies. Then on the global front, oil prices tanked due to potential for a global recession (BNP Paribas).

In South Africa, Q1 production-side GDP (Tuesday) and current account numbers (Thursday) will be the main focus next week. Following growth of 1.4% q/q in Q4 2018, we forecast GDP to have contracted 2.1% q/q saar (0.9% y/y) in Q1 2019 supporting our sub-consensus growth forecast for 2019 GDP growth of just 0.9% and underlining the urgent need for the new political administration to arrest the country’s policy paralysis. Much of the deterioration in the quarterly growth performance is likely to have been driven by the supply side of the economy as a combination of electricity supply cuts and industrial action in the precious metals sector weighed on manufacturing and mining output. On the expenditure side, while the persistence of low inflation probably alleviated the pressure on real disposable incomes, higher fuel prices and limited indexation of personal tax allowances probably resulted in a contraction in the wholesale, retail and auto sector’s quarterly performance, in our view. Meanwhile, we forecast balance of payments data on Thursday to show a deterioration in the current account deficit to 3.6% of

GDP in Q1 following a 2.2%-of-GDP shortfall in the final quarter of last year. Most of the deterioration is likely to have been driven by a return to a modest deficit (0.1% of GDP) in the trade account, breaking three straight quarters of surplus and largely due to an increase in fuel imports and a weaker export performance. Nevertheless, South Africa’s current account imbalance (and hence external financing requirement) remains narrower than in recent years, reflecting weakness in domestic demand and still supportive terms of trade (BNP Paribas).

Global stock markets shed over $2 trillion in value in May as the U.S.-China trade conflict escalated, with fears of a trade-related economic slowdown intensifying on Friday after U.S. President Donald Trump threatened Mexico with tariffs. Washington says it will impose a 5% tariff on Mexican goods beginning June 10, which would then rise steadily to 25% until illegal immigration across the countries' border is stopped. Trump tweeted the decision late Thursday, catching markets by surprise. "The more that we worry about additional tariffs being laid on when we haven't even resolved the initial tariff issues we're having with China, it's just negative overall for global markets," warned Saira Malik, head of global equities at Nuveen, a global investment manager with almost a trillion dollars under management. (Reuters.com).

Range for the day: 14.50 - 14.70