DAILY MARKET UPDATE - 30 AUGUST 2019 | Merchant West


daily markets commentary

Merchant West Capital Markets

USD/ZAR 15.2608 | EUR/ZAR 16.8468 | GBP/ZAR 18.5980

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Market Data:

26 Aug - US: US Core durable goods orders m/m | FOMC Member Bullard Speaks

27 Aug - JPY: JPY-PPI Services (y/y) | GER: Final GDP q/q | US: US Richmond Fed Manufact. Index

28 Aug-  US: MBA Mortgage Applications

29 Aug - EU: French prelim GDP & consumer spending | ZAR: PPI m/m | US: Initial Jobless Claims | CAD: Current account

30 Aug - SA: M3 Money Supply | Private Sector Credit (y/y) | Trade Balance | US: Personal Spending m/m | Personal Spending

Market Commentary:

Another day of relatively wide intraday swings yesterday when ZAR threaten to break 2019 highs in the morning by touching 15.48 but then this weakness faded throughout the day to a low of 15.26 which left us 0.44% stronger by the close and 0.23% in the black for the week thus far. August has historically been a volatile month but this year has felt quite heavy for EMFX with all but one currency in the red for the month-to-date with ZAR losing 4.4% with one trading day to go. We continue to look at recent macro drivers like the trade wars and further developments in Argentina that will dictate direction as month-end activity has been wrapped up. Expect to see a mixed day ahead as we find strong resistance at 15.50 with the U.S. Dollar at its peak for 2019 and pushing close to two-year highs but a close below 15.20 is likely to question the upside. Sentiment remains fragile globally as further escalations/de-escalations on trade are anticipated. (BNP Paribas)  

The South African Revenue Service (SARS) will release the July trade balance today. Bloomberg consensus foresees another surplus for July of R2.9bn, after the surplus of R4.4bn in June. We expect the trade balance to have remained broadly unchanged in July. In June, exports fell by 3.2% m/m, to R108.2bn, while imports fell by 5.8% m/m, to R103.8bn. Only January and April recorded deficits. Nonetheless, the cumulative trade balance remains in deficit for 2019, albeit only slightly. The current account deficit eased to 3.5% of GDP in 2018 as imports recovered from a deficit of 2.5% of GDP in 2017. We are optimistic about the 2019 deficit given subdued domestic demand and the lagged impact from rand weakness. We expect a compression to 3.2% of GDP despite the global growth slowdown and its negative impact on most of SA’s key export commodities’ prices; there has also been some respite from cheaper oil and higher gold prices. There may be an even smaller current account shortfall. However, there was likely a substantially wider current account deficit in Q2:19, to 4% of GDP, from 2.9% of GDP in Q1:19. The Q2:19 current account data is due next week. Bloomberg consensus expects a deficit widening to 3.1% of GDP. GDP is also due out next week. Consensus foresees growth of 2.5% q/q (saar) in Q2:19, after the deep 3.2% q/q (saar) contraction in Q1. Economic growth is expected at 0.5% in 2019 and 1.3% in 2020. (Standard Bank)

The growth rate of the US economy in Q2 was revised lower to 2.0% Q/Q according to the second release of the figures. This matched expectations and compares to the initial 2.1% growth rate pencilled in by the preliminary numbers released a few weeks ago. Looking at the data, consumers continue to keep the economy going as consumption expanded by 4.7%, the largest gains since 2014, to offset to some degree weakness seen across most other sectors. This data shows that Trump’s trade war is having a notable impact on the economy and that downside risks will likely continue to build, especially if we see a sudden drop in consumer confidence levels amid recent fears over a potentially looming recession. It is a busy end to the week and month in terms of global data today, with PCE core and consumer confidence measures out for the US. PCE Core inflation, the Fed’s preferred measure of underlying inflation, edged higher in Jul, rebounding from 1.5% y/y in Jun to 1.6% y/y. It is worth pointing out that this was slightly softer than consensus expectations of 1.7%. Note that core PCE has come in below consensus estimates for the past 6 months and remains below the 2018 average and target rate of 2.0%. Should this relative softness persist in the coming months, it will embolden the Fed to cut rates before the end of the year. Meanwhile, the preliminary Michigan Consumer Sentiment Index nose-dived in Aug, falling from 98.4 in Jun to a 7-month low of 92.1. Details from the preliminary report showed that there was a broad-based decline across the sub-components. The plunge in consumer sentiment comes at a time when US-China trade tensions have intensified, and recession fears have grown. Despite the plunge, however, relative levels of consumer confidence remain high, suggesting that consumption will continue to support the economy in the coming quarters, as highlighted above and barring any further notable declines. (ETM Analytics)