Daily Commentary - 03 September | Merchant West

Daily Commentary - 03 September

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

USD / ZAR 14.6863 - EUR / ZAR 17.0550 - GBP / ZAR 18.9639 -

Economic Events:

03 September:SA NAAMSA Vehicle Sales - GE Manufacturing - EC Eurozone Manufacturing PMI -SA Absa Manufacturing PMI

04 September: EC PPI - SA GDP Data - US Markit US Manufacturing PMI ;ISM Manufacturing

05 September: SA Standard Bank SA PMI - EC Retail Sales - US Trade Balance

06 September: SA Current Account Balance - US Initial Jobless Claims ;ISM Non-Manufacturing Index

07 September  :EC GDP data - US Change in Nonfarm Payrolls ;University of Michigan Sentiment

Market Commentary:

Local front - It was a rumbustious month for the Rand, and EM currencies in general, with the local unit tumbling more than 11% in August alone amid contagion risk from Argentina and Turkey. The local unit was on the back-foot the entire week, testing a high of R14.79/$ before paring losses to end the week at R14.69/$. The recent gyrations of the deepening rout experienced by the beloved currency, along with other EM currencies, is not driven by dollar strength, but rather a broad-based sell-off of EM assets emanating from idiosyncratic issues in Argentina and Turkey. Just to invert the old adage, one men’s meat is another’s poison; it was more like one EM country’s problems is other EM countries’ problems (Absa Bank)

China/SA - Chinese President Xi Jinping said on Monday that Chinese funds are not for "vanity projects" in Africa but are to build infrastructure that can remove bottlenecks in the continent's development. Speaking at a business forum ahead of the start of a once-every-three-years China Africa summit, Xi said: "Resources for our cooperation are not to be spent on any vanity projects, but in places where they count the most. “Inadequate infrastructure is believed to be the biggest bottleneck to Africa's development," he added.

Chinese officials say this year's summit will strengthen Africa's role in Xi's Belt and Road initiative to link China by sea and land through an infrastructure network modelled on the old Silk Road with southeast and central Asia, the Middle East, Europe and Africa. Xi said that the plan, which Beijing has pledged $126 billion for, would help provide more resources and facilities for Africa and would expand shared markets.

In most other nations, traditional donors, multilateral agencies and private creditors held significantly higher portions of debt, it added. The last decade has seen a boom in African Eurobond issuance. China has denied engaging in "debt trap" diplomacy, but Xi is likely to use the gathering of African leaders to offer a new round of financing, following a pledge of $60 billion at the last summit three years ago in South Africa.

Local Data front - South Africa's trade balance swung to a deficit of 4.66 billion rand ($317 million) in July from a revised 11.89 billion rand surplus in June, data from the revenue agency showed on Friday. Exports fell by 2.7 percent on a month-on-month basis to 107.07 billion rand in July, while imports increased by 13.8 percent to 111.72 billion rand, the South African Revenue Service said in a statement.

International front -  China's central bank may have to decide soon whether to intervene more forcefully to support the wobbling yuan currency as the United States readies more sweeping tariffs on Chinese goods. After tinkering around the edges while the yuan fell for four straight months, the People's Bank of China (PBOC) recently signalled it was not comfortable with further losses and managed to steady the currency before it tested the sensitive 7-per-dollar level. But market watchers say renewed pressure on the currency is inevitable as the Sino-U.S. trade war escalates, threatening to put more pressure on China's already cooling economy.

President Donald Trump's administration could slap tariffs on another $200 billion of Chinese imports as early as this week, the latest punitive measures aimed at forcing Beijing to improve market access, cut industrial subsidies and slash its huge trade surplus with the United States. Such a move could sharply amplify risks to the yuan, which is already facing downward pressure from Beijing's domestic monetary easing, rising U.S. yields and the broad-based rise in the dollar. “The central bank is now keeping a delicate balance, and any unexpected outcome from the Sino-U.S. trade talks or risk events in the market could weaken such balance," said Ji Tianhe, China rates and FX strategist at BNP Paribas in Beijing.

That could spur the PBOC into tightening foreign exchange measures, Ji said. Analysts at Bank of America Merrill Lynch see the yuan ending the year at 6.95 per dollar, another 1.6 percent decline following the currency's losses of about 5 percent so far this year. Goldman Sachs maintains a forecast of 7.1 per dollar by early next year, although their senior China economist M.K. Tang expects it will strengthen thereafter as trade tensions ease (Reuters)

Our Range for the day: R14.6000-R14.8500