Daily Commentary - 03 November 2017 | Merchant West

Daily Commentary - 03 November 2017

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

- USD / ZAR 14.0650 - EUR / ZAR 16.3875 - GBP / ZAR 18.3627 -

Economic Events:

03-Nov : US Change in Nonfarm Payrolls; Trade Balance ; ISM Non-Manf. Composite

Market Commentary:

South Africa's rand extended its comeback on Thursday, ignoring turbulence in parliament to trade below the psychological 14.00 mark as a sharp slide in the greenback encouraged some short buying before focus shifts to Friday's U.S jobs data. Stocks fell led by rand hedge shares that weakened on the back of a strengthening currency. At 17h00 the rand was 0.5 percent firmer at 13.9900 per dollar compared to close of 14.0600 overnight in New York. The rand touched a session best of 13.9075, driven initially by a dollar slide on reports U.S. President Donald Trump would nominate a dovish candidate to head the Federal Reserve. Rand-hedged stocks, which make the bulk of their revenue outside South Africa and tend to weaken as the currency strengthens, fell on the back of gains in the rand.

International front:

The dollar held steady versus a basket of currencies this morning, as investors shifted their focus to U.S. jobs data, with President Donald Trump's nomination of Federal Reserve Governor Jerome Powell to be the next Fed chair coming as no surprise. Trump on Thursday tapped Powell to lead the U.S. central bank, breaking with precedent by denying incumbent Janet Yellen a second term but signalling a continuation of her cautious monetary policies. Trump's decision was in line with what market participants had been expecting, and the dollar showed limited reaction after the news.

The greenback had slipped on Thursday after Republicans in the U.S. House of Representatives released proposals to overhaul the tax code. Republicans called for slashing the corporate tax rate to 20 percent from 35 percent, cutting tax rates on companies' foreign profits and on individuals and families. Congressional passage of the legislation, however, was far from certain. While the contents of the tax reforms seem positive for the dollar, there is still uncertainty over how quickly it can be implemented, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

While the generally positive risk sentiment is likely to support the dollar against the yen, dollar-selling interest among Japanese exporters could temper any gains in the greenback, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. The euro held steady at 1.1659 against the greenback.

The Bank of England raised interest rates for the first time in more than 10 years on Thursday but said it expected only "very gradual" further increases as Britain prepares to leave the European Union, sending sterling down sharply. The BoE's nine rate-setters voted 7-2 to increase the Bank Rate to 0.50 percent from 0.25 percent, reversing an emergency cut made in August 2016 after the Brexit vote.It was the first BoE hike since 2007, before the global financial crisis tipped Britain into a deep recession.

BoE Governor Mark Carney said that in broad-brush terms, the central bank was on the same page as investors who expect two more 25 basis-point rate hikes before the end of 2020. Nonetheless, he cautioned investors not to be too relaxed as inflation was still on course to exceed the BoE's 2 percent target in three years' time. "We in fact need those two additional rate increases in order to get that return of inflation to target," Carney told reporters. "If you look closely at the forecast, inflation approaches the target, it doesn't quite get there, and the economy is likely to be in a position of excess demand."

On the International data front:

The Labor Department said nonfarm productivity, which measures hourly output per worker, rose at a 3.0 percent annualized rate. That was the quickest pace since the third quarter of 2014 and followed an unrevised 1.5 percent rate in the April-June period. U.S. worker productivity increased at its fastest pace in three years in the third quarter but the trend remained moderate, suggesting that a recent acceleration in economic growth was unlikely to be sustained. Other data yesterday showed the number of people filing for unemployment benefits fell to a near 44-1/2-year low last week, offering further evidence that the labor market was tightening despite hurricane-related disruptions in September. The surge in productivity last quarter held down growth in labor costs, indicating that inflation pressures could stay benign for a while. Still, jobs market strength bolsters the case for the Federal Reserve raising interest rates in December. The U.S. central bank kept rates unchanged on Wednesday.

Our range for the day : R 13.92 - R14.12