DAILY MARKET UPDATE - 31 MAY 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.8240 | EUR/ZAR 16.5091 | GBP/ZAR 18.7066

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

email: treasury@merchantwest.co.za

Market Data:

31 May - SA Trade Balance | Personal Income | Uni Of Michigan Sentiment 

Market Commentary:

Today marks the end of yet another volatile trading week for the local currency as political forces once again dominated domestic markets. The rand appears to have gained some traction following the recent cabinet announcement. “Ramaphosa announced his smaller cabinet late on Wednesday, following on from a pre-election pledge to reform and revive an ailing economy and attract foreign investors”. “In addition to retaining Mboweni, Ramaphosa kept on Pravin Gordhan as public enterprises minister. The ministry oversees state-owned companies including power utility Eskom. He also retained David Mabuza as deputy president. “Overall we see the new cabinet as modestly positive, supporting our view that South Africa’s prospects are gradually improving as Ramaphosa’s leadership steadily delivers better governance,” said Johann Els, chief economist at Old Mutual” (Source: Reuters). On the data front, Producer Price Inflation (PPI) increased to 6.5% year-on-year and markets are expecting a contraction in first-quarter growth numbers due early next week. On the JSE, the All-Share traded up 1.3% and the Top-40 up 1.4%, largely attributed to the stronger local currency.

International markets continue to remain cautious as geopolitical tensions escalate further. The following is an excerpt from an article published by Reuters. “U.S. stock futures slid and sovereign bonds surged on Friday as investors feared President Donald Trump’s shock threat of tariffs on Mexico risked tipping the United States, and maybe the whole world, into recession. The investor mood darkened further when a key measure of Chinese manufacturing activity for May disappointed, raising questions about the effectiveness of Beijing’s stimulus steps. Markets moved aggressively to price in deeper rate cuts by the Federal Reserve this year, while bond yields touched fresh lows and curves inverted further in a warning of recession. Washington will impose a 5% tariff from June 10, which would then rise steadily to 25% until illegal immigration across the southern border has stopped. Trump announced the decision on Twitter late Thursday, catching markets completely by surprise”. 

The European economy is also under pressure with the rise of Euro-sceptic political parties. The common currency is currently hovering around a two-year low with little prospects for improvement in the immediate term. In the UK market, “the pound’s initial gains were trimmed after the hard-line Brexit Party took the lead in the first wave of results of the nation’s European parliamentary election. The results cap a month of misery for the pound, in which the currency posted a record losing streak against the euro and touched a four-month low versus the dollar. The weakness has been driven by speculation that May’s tenure was coming to an end and her successor may try and take the U.K. out of the EU without a deal” (source: Bloomberg).

Range for the day: 14.65 – 14.95