DAILY MARKET UPDATE - 4 JUNE 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.4563 | EUR/ZAR 16.2583 | GBP/ZAR 18.3001

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:

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:

ZAR gaining momentum breaking thru 14.50 level, coming from weaker USD story and potential for US rate cuts. 10y US rates have moved from 2.42% to 2.08% in less than 2 weeks. Data out is the GDP which could come out worse than expected, pushing ZAR back to 14.50. The next big move in ZAR won’t come from local data but from US or global sentiment. Keep a close eye out on US data and potential pricing in for rate cuts in the US. Latest data from the Institute of International Finance (IIF) shows outflows of USD5.7bn from EMs in May 2019, with equities accounting for USD14.6bn of outflows and inflows into debt totalling USD9bn. Our model’s latest results suggest there is room for an USD51bn increase in EM portfolio inflows over the next three months. The projected pick up in inflows in Q1 and Q2 2019 has been one the drivers of our more supportive EM outlook. Our monitor shows that while inflows into EM ETFs funds have increased by USD10bn year-to-date, May recorded outflows of USD5.5bn. Meanwhile, US HY ETFs received USD3.5bn in inflows year-to-date, while May saw outflows of USD3.3bn. Our analysis suggests there is a strong relationship between portfolio flows (on a 12-month rolling basis) and USD performance over the past two years. We also noticed signs of a reversal in the 12-month cumulative flows downtrend, in line with a slightly weaker US dollar in TWI (BNP Paribas).

The US dollar dropped again yesterday after comments by the St Louis Fed’s President, James Bullard, stating that rate cuts could be on the cards soon in order to lift inflation among the ongoing trade tensions. The dollar index, measured against a basket of currencies, dropped to a low of 97.106 before closing the day at 97.142. The euro caught a break yesterday and soared to levels last seen in the middle of May on the back of the weaker dollar. The common currency surged to a high of $1.1262 before closing the day at $1.1241. Pound sterling also rose on the back of the weaker dollar, but not as much as other currencies. The move higher has subdued by comments from French President Emmanuel Macron stating that Brexit must happen at the end of October and that there would be no further extensions. The pound reached a high of $1.2674 before closing the day at $1.2664 (ABSA).

The Rand continued the move lower on Monday, breaching below the R14.50/$ level on the back of the weaker dollar. The Rand reached a low of R14.4411/$ before closing the day at R14.4516/$. On the local data front, Q1 GDP is scheduled for release today at 11:30 (est: -1.7% q/q annualised, prior: 1.4% q/q annualised). Although the market is already expecting a negative growth figure, anything greater than a -1.7% decline could send the currency reeling back in the wrong direction. Q1 Current Account data is also scheduled for release later this week (ABSA).

Range for the day: 14.35 – 14.60