Daily Commentary - 01 September 2017

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

- USD / ZAR 12.9827 - EUR / ZAR 15.4319 - GBP / ZAR 16.7667 -

Economic Events:

01-Sep: EC Manufacturing PMI - SA Manufacturing PMI -US Change in Nonfarm Payrolls;ISM Manufacturing ; University of Michigan Confidence

Market Commentary:

South Africa's rand was slightly weaker on Thursday, reversing some earlier losses against a buoyant dollar as domestic trade figures showed another surplus (although softer) and producer inflation slowed.

At 17h00 the rand weakened 0.12 percent to 13.0250 per dollar, having reached a session low of 13.0800. The rand rallied to its firmest in one month on Friday but has lacked momentum to push it past the 12.9600 short-term resistance mark this week with concerns over the economy scuttling demand spurred by a global appetite for risk. Traders said they were opting to sell the currency and take small profits in anticipation of a rebound by the dollar. South Africa registered its sixth consecutive surplus in July, data showed. The market's key indices have been hitting record highs, driven by a handful of blue chip companies such as Naspers which make most of their earnings offshore, cutting their exposure to South Africa, which slid into a recession in March. But momentum indicators tracked by analysts suggest the market was overbought at such levels and while the indices remain within striking distance of their historic peaks, any upward move could be constrained by technical factors.


On the local domestic front:

South Africa's producer price inflation slowed to 3.6 percent year-on-year in July from 4.0 percent in June, the statistics agency said on Thursday. On a month-on-month basis, PPI rose 0.5 percent after contracting 0.3 percent in the previous month, Statistics South Africa said.

South Africa's trade surplus slid to 8.99 billion rand ($688 million) in July from a revised 10.56 billion rand surplus in June, data from the revenue agency showed on Thursday. Exports fell 8.7 percent to 93.1 billion rand on a month-on-month basis in July, while imports were down 8 percent to 84.1 billion rand, the South African Revenue Service said in a statement.


International front:

The dollar edged down on Friday after tepid U.S. economic data casts doubts on whether the Federal Reserve will raise rates again this year, though investors were cautious ahead of the key monthly U.S. employment data later in the global session. The dollar index, which tracks the greenback against a basket of six rival currencies, edged down 0.1 percent to 92.619, poised to shed 0.1 percent for the week. It remained well above this week's 2-1/2-year low of 91.621 plumbed against a background of tensions on the Korean peninsula.

Also weighing on the U.S. currency were comments by Treasury Secretary Steven Mnuchin, who suggested on CNBC that a weaker dollar might have advantages for U.S. trade. Mnuchin also said that tropical storm Harvey which ravaged Texas could bring forward the deadline by which the nation's debt ceiling needs to be raised. Thursday's data showed U.S. consumer spending rose slightly less than expected in July and annual inflation increased at its slowest pace since late 2015. There was also a small increase in new applications for unemployment benefits last week amid a tightening job market.

Today’s nonfarm payrolls report is expected to show that employers added 180,000 jobs in August, according to the median estimate of 93 economists polled by Reuters. "I don't think today's jobs data will make much difference to the Fed," said Mitsuo Imaizumi, Tokyo-based chief foreign-exchange strategist for Daiwa Securities. "Whether or not the Fed hikes again depends on the overall trend, and what the employment situation is like in autumn, and by then, no one will be thinking about the August figures, whether they're good or bad today," Imaizumi said.Financial markets were pricing in a roughly one in three chance of a rate increase at the Fed's December meeting, according to CME Group's FedWatch, down from about even chances as recently as last month.

Elsewhere, at its own policy meeting next Thursday, the European Central Bank is highly unlikely to take any decision on trimming its asset purchases, which will be phased out only slowly as the euro's rapid gains against the dollar are worrying a growing number of ECB policymakers, three sources familiar with discussions told Reuters. The euro was steady at 1.1907 against the greenback, down 0.1 percent for the week but up more than 13 percent this year. The ECB's purchase scheme is due to expire at the end of 2017 and the central bank has said it will announce in autumn if it will extend the plan it put in place two and a half years ago. ECB chief Mario Draghi has said that the programme will continue until the central bank is happy that inflation is consistent with its medium-term target of just below 2 percent. (Reuters)

On the International data front:

The number of Americans filing for unemployment benefits rose slightly last week, pointing to sustained labor market strength that should continue to support the economy. Initial claims for state unemployment benefits increased by 1,000 to a seasonally adjusted 236,000 for the week ended Aug. 26, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported. Claims have now been below 300,000, a threshold associated with a robust labor market, for 130 consecutive weeks. That is the longest such stretch since 1970, when the labor market was smaller. A Labor Department official said there were no special factors influencing the claims data and that no states had been estimated. But upcoming reports could be impacted by Tropical Storm Harvey, which has devastated parts of Texas. The storm will probably leave some people temporarily unemployed and hamper the filing of claims. Economists polled by Reuters had forecast claims rising to 237,000 in the latest week. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell by 1,250 to 236,750 last week, the lowest reading since May.

Our range for the day : R12.9600 - R13.08    ( Pre Nonfarm Payrolls)