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Below you will find a daily finance and markets review provided by Rand Merchant Bank analysist John Cairns. This information is provided as a matter of interest to readers of this blog, should you be interested to receive further information and insight you may register through RMB directly. Thanks, Ed

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Date: 23rd June 2009

Please find your Daily Insight attached.

WHAT TO WATCH TODAY:
-US existing home sales at 16:00.
-The US and EU are expected to launch a WTO case against China today over its export restriction on raw materials

TODAY’S EXPECTED RANGES:
USD/ZAR: 8.12 — 8.30
EUR/ZAR: 11.25 — 11.50

THIS WILL BE A VERY SLOW RECOVERY
I believe firmly that the global recovery is going to be anaemic ; the global financial sector remains severely damaged thereby inhibiting the flow of credit to the economy and, most importantly, the US consumer in no position to go on a renewed spending spree. Hopes that China will drag the world out of recession seem absurd when one consider that local consumption makes up less than 3% of global GDP, that a decade of attempts to spur spending have proved largely fruitless and, most of all, when one considers that Chinese imports are actually still falling.

It takes more than my voice though to change the market. But it’s a different story when you get the combined voices, speaking independently, of the Chinese Central Bank (China not going to recover quickly), the White House (unemployment to push beyond 10%) and the World Bank and OECD (recover to come only very slowly).

All these comments have driven a sharp rise in risk aversion with global stocks dropping in excess of 2% overnight and commodity prices under pressure. USD/ZAR reacting as a result, pushing right up to key resistance level at 8.24. Given where other currencies are trading look for pressure for a break this morning and unless US equities open in positive (which would mean positive US existing home sales figures this afternoon) then USD/ZAR will push to, and even beyond, 8.30. And this might just be the first in a long unwind of the 2Q09 ZAR gains.

The only real positive for the ZAR is the IMF’s warnings that the USD could weaken significantly. If this risk scenario plays out USD/ZAR could head much lower.

THE CROSSES:
-The move in the ZAR was caused by risk aversion, which implied the ZAR weakened against all the major crosses.
-EUR/ZAR is probably the least affected and continues to struggle to break 11.40.
-ZAR/JPY is the most affected, , representing the JPY’s safe-haven status, having already traded down to 11.50.
-GBP/ZAR continues its multi-month upwards march with 13.50 in sight.

OTHER NEWS
-The World Bank: global economy to shrink 2.9% this year.
-The OECD: most developed country economies would continue to shrink through this year.
-Chinese central bank: China’s economy is headed in the right direction but the foundation of the recovery are not yet solid.
-White house: the US unemployment rate is likely to hit 10% in the next couple of months.
-Germany’s IFO business confidence rose to 85.9 (85.2).
-South Africa’s leading indicator turned up in April.
-The IMF warned that the dollar may weaken significantly.
-Anglo America’s board rejected Xstara’s merge offer. The SA government said it was worried about job losses.

John Cairns and Nema Ramkhelawan
Financial Markets Research: Currency
Fixed Income, Currency and Commodities (FICC)
Rand Merchant Bank, a division of FirstRand Bank Limited

1 Merchant Place
Cnr Fredman Drive & Rivonia Road, Sandton, 2196
P O Box 786273, Sandton, 2146, South Africa
Tel +27 (0)11 282 8656

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