DAILY MARKET UPDATE - 31 JULY 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.1673 | EUR/ZAR 15.8014 | GBP/ZAR 17.2366

Please feel free to contact us on the details below:

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

email: treasury@merchantwest.co.za

Market Data:

29 July - EC: Economic Confidence | SA: South Africa Unemployment | South Africa Budget | US: Personal Spending

30 July - No meaningful data

31 July - US: MBA Mortgage Applications | SA: Trade Balance Rand | Trade Balance Rand | US: FOMC Rate Decision (Lower Bound)

01 Aug - EC: Markit Eurozone Manufacturing PMI | UK: Markit | PMI Manufacturing: Bank of England Bank Rate | SA: Absa Manufacturing PMI  

02 Aug - US: Change in Nonfarm Payrolls | Unemployment Rate | Trade Balance

Market Commentary:

(Reuters) - South Africa’s rand steadied on Tuesday as traders, eschewing big transactions despite poor unemployment figures and a warning of another loss from power utility Eskom, stayed on the sidelines ahead of a U.S. monetary policy announcement. Eskom has reported a R20.7bn loss after tax for the financial year in March, from R2.3bn loss in the previous year.  At 08h40 , the rand was up 0.28% at 14.1650 from a close of 14.2050 overnight in New York. “There are many in the market questioning why the rand is not blowing off more than it has. Eskom is producing major losses, there are bailouts galore, and the budget deficit is blowing out to 6% or more,” said ETM Analytics in a note.  The Public Enterprises Minister Pravin Gordhan announced his Chief Restructuring Officer at the SOE – Freeman Nomvalo, was his pick with previous experience as the country’s Accountant-General between 2004 and 2013 as well as a business consultant in helping organisations achieve value-added change. Although the Rand is relatively stable – we struggle to gain in the rates space and SAGB’s trade poorly. Equities closed weaker with the Johannesburg Stock Exchange’s all-share index down 1.37% to 57,242 points, while the Top-40 index fell 1.48% to 51,207 points. In fixed income, the yield on the benchmark government bond due in 2026 edged down to 8.31%. Oil prices are up this morning following a larger than expected decline in US inventories. Brent crude oil prices are up 21.3% year-to-date. The gold price is up marginally and up 11.5% year-to-date.SA trade balance for June is due out later today. Bloomberg consensus sees the trade surplus wider, at to R4.2bn in June, from R1.7bn in May.

In U.S markets, GDP growth slowed to 2.1% q/q in Q2:19 (the slowest since Q1:17). This has however, still exceeded expectations of 1.8% q/q; GDP growth was 3.1% q/q in Q1:19. The positive contributors in Q2 were personal consumption expenditure, federal government spending, and state and local government spending. The negatives came from private inventory investment, exports, and residential and non-residential fixed investment. The FOMC will announce the Fed’s rates decision tonight and markets are fully pricing in a 25 bps rate cut which would mark the first cut in a decade. Expectations of a more aggressive rate cut of 50 bps seems to have faded away this past week. The Fed still faces the challenge of combating slow growth and trade tensions .President Trump’s criticism of the Fed ahead continues apace, with him claiming that the Fed would “likely do very little to ease interest rates” and that “a cut of 25 bps would not be enough”.

In European markets, the euro gained back some ground against the greenback in yesterday’s session, reaching a high of $1.1161 before closing the day at $1.1155. The reason for this was primarily as a result of a sell-off in the greenback ahead of the FOMC because Eurozone data as a whole, disappointed with sentiment declining across all categories.. UK Prime Minister Boris Johnson will spend the next few weeks attempting to negotiate a better deal with the EU, but is preparing the country to leave the bloc in case he fails. The pound closed the day at $1.2152. The British pound depreciated further yesterday on the hardline Brexit view of new PM Boris Johnson. A big concern is his view that the UK will leave the EU at the end of October with or without a deal..The GBP reached a low of $1.2119, levels last seen in March 2017. The pound closed the day at $1.215.

Trading range: 14.15-14.35