Daily Commentary - 02 March 2018

Contact Merchant West Capital Markets on: (+2711) 305-9500 or treasury@merchantwest.co.za - USD / ZAR 11.8748 - EUR / ZAR 14.5588 - GBP / ZAR 16.3453 -

Economic Events:

02 March : UK PMI ( Construction )  - EU PPI

Market Commentary

Local front:

South Africa's rand slipped to its lowest in two weeks on Thursday, succumbing to month end demand for dollars by local firms as the increasing chance of higher interest rates in the United States lured bulls back into long-dollar positions. At 16h30 the rand was 0.98 percent weaker at 11.9100 per dollar, its softest level since February 14, compared to an overnight close of 11.7875. It was the first time in more than two weeks the rand closed above technical support around 11.80, bringing losses since Monday to 3 percent, prompting some technical selling as well as portfolio rebalancing by corporates offloading excess rands.

Local economic data was mixed. The Absa purchasing manager's index showing the private sector rising to its best in ten months, but year-on-year new vehicles fell for a third consecutive month. Bonds were also softer, with the yield on the benchmark ZAR186 paper due in 2026 up 0.5 basis points to 8.13 percent. In the equities market, the Johannesburg All-share index closed 0.69 percent down to 57,923 points, while the blue-chip Top 40 index fell 0.72 percent to 51,011 points.

International front:

The dollar sagged on Friday, having pulled sharply back from six-week highs after U.S. President Donald Trump's decision to impose tariffs on steel and aluminum took the wind out of the greenback's week-long recovery. The dollar index against a basket of six major currencies fell 0.15 percent to 90.185.

The index had already shed 0.4 percent overnight, peeled away from a high of 90.932 - its strongest since Jan. 19 - after Trump announced on Thursday he would impose steep tariffs on imported steel and aluminum. The Trump administration said the tariffs would protect U.S. industry, but the dollar and Wall Street shares slumped as the plan sparked fears of an imminent trade war and worries about its potentially negative impact on the world's largest economy.

The dollar had sank to the three-year low last month, partly on fears of U.S. protectionism, and such worries were revived just as the currency looked set to shake off weakness suffered through much of February. "The dollar appeared oversold in February, with the number of currency bears having increased beyond excess. Prior to Trump's tariff talk some of that excess was being corrected, but his announcement took the dollar back to square one," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

The euro inched up 0.1 percent to 1.2276 against the greenback after rising 0.6 percent overnight. The common currency was still poised for a loss of about 0.25 percent this week, during which it slid to a seven-week low of 1.2154 on Thursday when the dollar was still enjoying a broad bounce.

International Data front:

CPI - U.S. consumer prices increased in January, with a gauge of underlying inflation posting its largest gain in 12 months, bolstering views that price pressures will accelerate this year. The Commerce Department said on Thursday consumer prices as measured by the personal consumption expenditures (PCE) price index, rose 0.4 percent. That was the biggest increase since September and followed a 0.1 percent gain in December. In the 12 months through January, the PCE price index rose 1.7 percent after a similar gain in December because of base effects. Excluding the volatile food and energy components, the PCE price index advanced 0.3 percent in January - the largest gain since January 2017.

Inflation is expected to breach its target this year as a tightening labor market boosts wage growth. Faster economic growth, spurred by a $1.5 trillion tax cut package and increased government spending, is also seen stoking inflation. Higher inflation cut into consumer spending growth in January. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.2 percent. That was the smallest increase since August and followed a 0.4 percent advance in December.

Initial Jobless claim - The number of Americans filing for unemployment benefits unexpectedly fell last week, hitting the lowest level in more than 48 years, pointing to a rapidly tightening labor market. Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 210,000 for the week ended Feb. 24, the lowest level since December 1969, the Labor Department said on Thursday. Claims for the prior week were revised to show 2,000 fewer applications received than previously reported. Federal Reserve officials consider the labor market to be near or a little beyond full employment. The jobless rate at a 17-year low of 4.1 percent.

Our range for the day : R 11.7000 - R 12.0000

The above information has been sourced from Reuters.