Daily Commentary- 02 February 2018

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

- USD / ZAR 11.9300 - EUR / ZAR 14.9160 - GBP / ZAR 17.0016 -

Economic Events:

02 Feb : EC PPI - US Change in Nonfarm Payrolls ; Unemployment Rate

Market Commentary:

The rand is set for a strong finish to the trading week after holding firm against the US dollar. Emerging market currencies have been raking in gains over the last few months, with the rand coming out on top. Fin24 reported that South Africa’s currency has had its best three-month run in almost 10 years as it rides a wave of optimism following deputy president Cyril Ramaphosa’s election as the leader of the ruling African National Congress. However, the question has been raised as to how long optimism will be able to support the rand`s recent strength. “The rand will continue to remain sensitive to the headlines surrounding political news,” Zaakirah Ismail, a fixed income analyst at Standard Bank Group, told Fin24 by phone. Market participants are now looking for clues on how long the ANC plans to keep President Jacob Zuma in office. “There will be no special sitting to debate a motion of no confidence against President Jacob Zuma before the State of the Nation Address (SONA)”, National Assembly Speaker Baleka Mbete said. They said SONA 2018 would go ahead as planned on February 8 irrespective of a mooted change in the Presidency. On the JSE, the All Share index traded down 0.42% and the Top40 down 0.31%. Property shares have also come under pressure since January on market speculation that US firm Viceroy Research would release a negative report on a listed firm (source: Moneyweb).

In the US market, the dollar strength that followed after Wednesday`s  FOMC meeting was short-lived as it fell on Thursday. The dollar index, which tracks the greenback against a basket of six major currencies, traded down slightly. Although the US Federal Reserve opted to leave rates unchanged at their last meeting, expectations are set for three interest rate hikes in the coming year. “The dollar has struggled this year as expected monetary policy-tightening in other parts of the world, along with stronger global economic growth, encouraged investors to put more of their money elsewhere, particularly the euro zone. Traders are looking ahead to the U.S. government’s jobs report on Friday, which will include data on nonfarm payrolls and average hourly earnings” (source: Reuters). Nonfarm payrolls probably rose by 180,000 jobs in January after increasing 148,000 in December, according to a Reuters survey of economists. The unemployment rate is forecast to be unchanged at a 17-year low of 4.1 percent.

The euro neared multi-year peaks as talk of policy tightening in Europe and expectations that inflation is set to gear higher drove up borrowing costs. The European Central Bank, for one, is widely expected to end its asset-purchase program as early as September. (Source: Reuters)]

In other news, Auditing firm Deloitte predicts 2018 will be a watershed year for tax increases. Finance Minister Malusi Gigaba in his budget speech on 25 February will have to juggle necessary austerity measures as well as an increase in public spending on higher education, drought relief and infrastructure. The possibility of raising the current Value Added Tax (VAT) rate has been on the cards for several years and is a hotly contested issue. Government has so far avoided it as an option due to the effect it will have on lower income earners and opposition from trade unions. But with the prospect of a 4.5% budget deficit being announced in the budget speech, Deloitte Director: Indirect Tax, Severus Smuts, believes R20bn could be raised by hiking VAT 1% without adding administrative costs for collections. (Source: Fin24)

Our range for the day : R 11.8000 - R12.0800