Weekly market brief - 17 May 2018

It’s all about the dollar, the dollar, the dollar

Currency Outlook

  • Rising US Treasury yields has been a major driver of dollar strength. This has raised global borrowing costs - for emerging markets with current account deficits that means higher costs and the risk of fund outflows.
  • The rand, along with currencies of other developing nations, came under pressure after the dollar started to strengthen in mid-April, but a pause in the greenback's rally allowed the rand to recover on Friday.
  • According to a Reuters report on Thursday “USD/ZAR is on course for its steadiest H1 in terms of price range since 2014 and despite plenty of chop within 11.51-12.7350, the volatility has so far been down on the first six months of 2017 and 2016.” “…the outlook could be for further range trading and low volatility within the established range.”

Local Data

  • The Unemployment Rate for Q1 of 2018 remained unchanged at 26.7%, however Total Employment rose by 100,000 to 6,000,000 people.
  • March’s Retail Sales came in above expectations to read at 4.8%, just a 0.1% decrease from the previous month.

Interest Rate Outlook

  • Next week’s MPC meeting will conclude with the latest key rates decision.
  • Various comments from SARB Governor Lesetja Kganyago point towards a cautious SARB, as global influence on the rand and the effects of the VAT rate hike are fully felt out. Next week’s inflation data may also shed some light, being a main factor for the countries monetary policy decisions.

International News

  • The Commerce Department said on Tuesday that retail sales rose 0.3% last month after surging 0.8% in March. Last month's increase in retail sales was in line with economists' expectations.
  • New applications for US jobless benefits increased more than expected last week, but the number of Americans on unemployment rolls fell to its lowest level since 1973, pointing to diminishing labour market slack.
  • Euro zone inflation slowed in April, European statistics agency Eurostat said on Wednesday, confirming an earlier flash estimate and adding to the headache of European Central Bank policy makers seeking to phase out a monetary stimulus package.

Precious Metals

  • Gold fell to $1 288.31/oz on Tuesday, under pressure from the dollar rally and surging US Treasury yields, which overshadowed geopolitical tensions.
  • Silver fell to a two-week low of $16.17/oz on Wednesday while platinum fell to a five-week low of $883.50/oz

Base Metals

  • 3m copper fell to $6 765/t on Tuesday on rising inventories and mixed economic data from China.
  • The base metal recovered to $6 866/t on Thursday as the dollar retreated.

Oil

  • Brent fell to $76.55/bbl earlier this week, weighed down by ample supplies despite ongoing cuts by the OPEC producer cartel and looming US sanctions against Iran.
  • Brent rose to $79.49/bbl on Thursday, its highest level since November 2014, as US inventories fell.
  • US bank Morgan Stanley has raised its brent price forecast to $90/bbl by 2020, due to a steady increase in demand.