Weekly market brief - 19 July 2018

Commodities in free fall

Currency Outlook

  • GDP growth in South Africa is forecast to grow by 1.5% this year according to the IMF’s July World Economic Outlook. This is despite Q1’s 2.2% contraction and mild growth in Q2 of 2018 so far. The SARB lowered its GDP growth forecast to 1.2% from 1.7%, in line with ABSA’s forecast.
  • Overall the currency has been less reactionary to international news, possibly due to some improving local data. The rand range traded for most of the week, contrary to some of the more substantial moves seen in the EURUSD currency pair. The local unit remained between about R13.17 and R13.38 until Thursday, when a continued push stronger by the US dollar saw the currency give way to trade above R13.50 at one point, a more than 20c move from the open.
  • With the SARB keeping rates on hold and CPI data behind us, the rand may give way to more volatility than was seen earlier during this week. A close above R13.50 could open moves up to R13.60 while a failure to breach these levels means the currency may settle back into the R13.17 – R13.38 range that’s been seen recently.

Local Data

  • After reaching its highest level since inception, with a reading of 26 in Q1:18, the FNB/BER’s CCI fell to 22 during Q2:18.
  • CPI Inflation accelerated to 4.6% y/y in June from 4.4% y/y in May. This was slightly below consensus expectations of a rise of 4.8% y/y.
  • Retail sales also grew by 1.9% y/y in May from 0.5% y/y in April. Unlike CPI, this was above consensus expectations of a 1.0% y/y rise. However, on a quarter on quarter seasonally adjusted annualised basis (qqsa), retail sales fell by 0.4% in May. The qqsaa is a measure used to calculate GDP and implies that the trade sector could risk making a negative contribution to growth.
  • Eskom is still in negotiations with labour unions regarding employees’ wage increases.

Interest Rate Outlook

  • As expected, South African Reserve Bank (SARB) has decided to keep the repo rate unchanged at 6.50%.
  • As per Governor Lestja Kganyago, he had mentioned that, “While headline inflation is comfortably within the inflation target band, indications are that we have passed the low point of the current cycle and South Africa growth outlook remains challenging.”

International News

  • US retail sales rose for a fifth month in June and figures from May were revised upwards amid gains at auto dealers and nonstore retailers.
  • US business inventories rose 0.4% in May and sales recorded their biggest increase in eight months, government data showed on Monday.
  • Euro area inflation rose to 2.0% y/y in June, up from 1.9% in May and from 1.3% a year earlier, according to Eurostat.
  • British inflation failed to rise as expected last month, potentially giving the Bank of England policymakers pause for thought ahead of a widely expected interest rate hike last month.

Precious Metals

  • Gold fell to a one-year low of $1 220.81/oz on Wednesday as the dollar firmed during an upbeat testimony of the US economy by Fed Chair Jerome Powell, raising market expectations of two more interest rate hikes this year.
  • The net position in gold increased by 724koz to 10.04moz in the week leading to July 10th.

Silver and PGMS

  • Silver fell to 15.27/oz on Thursday, its lowest since April 2016, as the dollar strength weighed on commodities.
  • Palladium fell to $898/oz, it lowest since August 2017, while platinum fell to $798.14/oz, its lowest since December 2008.

Base Metals

  • 3m copper fell to $6 080/t on Wednesday after China's economy expanded at a slower pace in the second quarter, the dollar strengthened and concerns over demand remained as the US-China trade war continues.


  • Brent fell to $71.35/bbl earlier this week as Libyan ports resumed export activities. The price did find some support after more oil workers went on strike in Norway.
  • US crude stocks rose by 5.8 million barrels last week, compared with a forecast of a decline of 3.6 million barrels.