Daily Commentary- 03 October 2017

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

- USD / ZAR 13.6357 - EUR / ZAR 16.0113 - GBP / ZAR 18.1030 -

Economic Events:

03-Oct: EC PMI - US ADP Employment Chang ; PMI

04-Oct: SA SACCI Business Confidence

05-Oct : US Jobless Claims ; Trade Balance

06-Oct : SA Net Reserves - US Change in Nonfarm Payrolls ; Unemployment Rate

Market Commentary:

On Monday, the rand along with its emerging market counterparts, continued to feel the pressure of a strengthening US dollar. Demand for the local currency has also been dampened by disappointing economic data released on Friday, showing  a R13 billion budget deficit for August. The South African economic outlook leaves much to be desired and has become increasingly evident in the substantial weakening of the rand over the past weeks. Concerns over spill-over effects into economic growth and the increasing risk of credit downgrades have also started to creep in. The weaker rand could also spur some inflationary pressures and could delay the SARB`s plans to cut interest rates in the short-term.  Despite the dim local outlook, international factors have been the majority contributor to the latest rand tumble, with markets keeping a close eye on developments in the US. On the JSE, the Top40 traded up 0.47% and the All Share index up 0.36%.

In the US, strong manufacturing figures provided support for the interest rate hike argument and assured the continuation of the recent dollar rally. The US ISM Manufacturing index came in above expectations at 60.8 in September, up from a previous 58.8. The dollar index, which measures the greenback against a basket of six major currencies, is approaching a two-month high as it traded up by 0.6% on Monday. The dollar is drawing its strength from prospects of an improving US economy, following a hawkish speech by Janet Yellen and President Donald Trump`s tax reform policies. Futures market positioning data from the Chicago Mercantile Exchange shows that speculators have amassed their biggest bets on a weaker dollar in nearly five years, which raises the question on the sustainability of the dollar rally.

The European market has been off to a rough start, with the euro losing ground against the greenback and underperforming most of the G10 currencies, with the exception of the GBP. Markets are cautious following a push by Catalonia towards independence, supporting the argument for a bearish outlook. The political uncertainty revived concerns of over the fragility of the European union after Brexit. On the data front, EU Markit Manufacturing PMI for September was revised to 58.1 from a preliminary estimate of 58.2. Data released by IHS Markit indicated that activity in Britain’s manufacturing sector significantly reduced in September, with the manufacturing index sliding from 56.9 to 55.9, falling below expectations of a more modest drop to 56.4 but remaining above the 50 mark which separates growth from contraction. As this report follows hard on the heels of last week’s negatively revised Q2 growth data, the decline has also led to further concerns that the wider UK economy may be slowing, with the outlook amongst many economists being rather bleak.

Our range for the day : R13:50 - R13.70