Daily Commentary - 02 August 2017

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

- USD / ZAR 13.2875 - EUR / ZAR 15.7251 - GBP / ZAR 17.5872 -

Economic Events:

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 after disappointing PMI data was released. PMI plummeted to its weakest level since August 2009 coming in at 42.9 in July, falling 3.8 points from the June reading. New vehicles sales showed a modest recovery, growing by 6.2% year on year during July, but the market seemed to have ignored this release.

Yesterday SARB governor Kganyago, addressing parliaments’ standing committee on finance on its mandate and the economic climate, said that he was asked at the last two international meetings with central bankers, what was going on in SA. He said that central bankers are usually not concerned, but it appears that political uncertainty has had an impact. It is also impacting the confidence of investors and is no longer just domestic. These concerns have emboldened SARB to challenge the findings of the Public Protector who said that the bank’s constitutional mandate need to be changed to achieve transformation. A court judgement on this matter will be delivered on the 18th August and SARB will have to obey the remedial action unless it is ruled unlawful.

Today the speaker of parliament, Baleka Mbete, will announce her long awaited decision on whether the vote of no confidence against President Jacob Zuma on the 8th August will be a secret ballot. A secret ballot will probably not affect the outcome but it would be positive for both the rand and bond sentiment in the short term. Standard Bank is also of the view that rand weakness will fade due to the weaker dollar and stronger commodity prices.

A host of soft data out of the US yesterday did not appear to have a big impact on the markets, but would read as negative for the dollar and rates. US ISM manufacturing employment fell to 55.2 pts from 57.2 pts, but still remains a good print.

Geopolitical tensions between the US and North Korea continue to rise, with the US being reported to be planning to send two aircraft carriers towards North Korea. North Korea could retaliate if there is any sign of aggressiveness on the part of the US and could result in risk-off in global markets.

Eurozone Q2:17 GDP data was published in line with expectations yesterday and this could should keep pushing the Euro ahead. EUR/USD opened at 1.182 and the moving averages also suggest a further upward trend.

UK Markit PMI for July rose above expectations to 55.1pts in June. The rise was largely on the back of increased exports which the BOE expects will support the economy in the face of low consumer spending.

Expected range : 13.10 – 13.40