Daily Commentary - 01 August 2017

Contact Merchant West Capital Markets on: (+2711) 305-9500 or treasury@merchantwest.co.za

- USD / ZAR 13.1724 - EUR / ZAR 15.5716 - GBP / ZAR 17.3984 -

Economic Events:

01-August: EC Manufacturing PMI ; GDP- SA Manufacturing PMI - US Manufacturing PMI

02-August: EC PPI

03-August: EC Retail Sales - US ISM Non-Manf. Composite

04-August: US Change in Nonfarm Payrolls ; Unemployment Rate ; Trade Balance

Market Commentary:

The rand weakened yesterday and retreated to its lowest level since July 13 after ratings agency Moody’s warned that while a rate cut on July 20 by SARB would support growth, it signalled there was growing political pressure on economic policy. Jim Bryson, a trader at Rand Merchant Bank said that this is confirmation that Moody’s sees monetary policy as key to the rating. He said that if they aren’t happy, it means they might downgrade us in the future. Moody’s rates South Africa’s debt in investment grade but with a negative outlook. S&P Global Ratings and Fitch have downgraded the country’s debt to “junk” status. A point to note is that the cut on July 20 was the first in five years and did come as a surprise to markets.

June trade surplus rose to 10.67 billion rand from a downwardly revised 7.2 billion in May and above market expectations of 9.4 billion rand. Imports decreased to 4.2% month on month, while exports decreased at a slower pace of 0.6% month on month. Exports year to date have increased by 4.7% far outpacing imports which has decreased by 1.4% since the beginning of the year.

Yesterday’s trade figure, increased commodity prices and a weaker US dollar did not benefit the rand as it lost more than 1.2% after Moody’s comments. This morning the rand has recovered some losses and Standard Bank said they continue to believe that local risks are generally well priced into the market and as a result they expect rand weakness induced by local events, to fade.

The US dollar is trading weaker and especially against the Euro due to staff turnover in the White House under President Trump and the expectation that major central banks such as the ECB may start tightening monetary policy soon.

Eurozone CPI for July was flat at 1.3% year on year, but core CPI rose unexpectedly to 1.2% year on year from 1.1% in June. Inflation is expected to remain subdued in the foreseeable future due to lower oil prices and a stronger Euro. Despite this, the ECB may signal the end of an extremely loose monetary policy soon. Unemployment figures in the Eurozone for June fell to its lowest level since February 2009, coming in at 9.1% versus 9.2% in May.

The Reserve Bank of Australia kept interest rates unchanged at 1.5% this morning.

Expected range 13.00 – 13.30