Daily Commentary - 04 September 2017

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

- USD / ZAR 12.9526 - EUR / ZAR 15.4015 - GBP / ZAR 16.7670 -

Economic Events:

04-Sep: No data of real importance

05-Sep: EC GDP - SA GDP - US Durable Goods Orders

06-Sep: SA SACCI Business Confidence - US Trade Balance  ; Services PMI

07-Sep: SA Manufacturing Production - EU Interest Rate Decision

08-Sep: No Data of real impotance

Market Commentary:

Today is Labour Day and a bank holiday in the US which will mean thinner market conditions globally. This may prompt investors to be slightly cautious in their position taking and it will mean that there is a good chance that the ZAR will hold onto its gains from Friday – however any directional momentum will likely wait until later in the week as data starts to filter through. Data that is due to be released this week include the likes of SA GDP Growth Rate for Q2 which will be released on Tuesday, and hopefully pulls us out of our recession. The rest of the data due to be released is second tier in nature and is unlikely to trouble market participants too much.

Looking back at the figures that came out on Friday, August US payrolls surprised investors with downside surprises across the board. Unemployment ticked up to 4.4% while NFP numbers came in at 156k, 26k less than what was forecast for the market. Investors are attributing this dip to calendar effect drag, however, the fact that prior figures were not revised lower increases the concern somewhat. The ISM manufacturing PMI released late Friday afternoon rounded up the major figure releases with a very strong showing of 58.8 which shows that the manufacturing sector is closing in on 2011 highs. US Oil prices are also on the rise in the wake of Hurricane Harvey’s devastating aftermath as analysts predict it may now be months for the US oil industry to recover for refineries gradually start up production again.

The Rand naturally took advantage of the NFP August figure and pushed as low at 12.86 against the Greenback by mid Friday afternoon, but this move was not sustained. However the clean break of 12.88 support is of some significance. The general consensus remains firmly in favour of a deeper USD/ZAR retreat. Indicators at this moment point to a USD/ZAR move to a sustainable break below the 12.88 support level and in the longer term to test the 12.60 support level. In the fixed income space, SA Government Bonds were notable as the out-performer among emerging market peers last Friday, relishing the ZAR’s performance with yields across the board ending 5-7 bpts down. The 10 year SA R186 Government Bond crucially closed below the 8.50% for the first time since June.

In the UK news this week, Tuesday we see the release of Markit/CIPS services PMI while Halifax house price data is released on Wednesday. GBP/USD has maintained a strengthening bias over the last few days and was supported into the week despite dollar strength.

North Korea is still posing a global threat as they have claimed to have detonated ahydrogen bomb which once again ramps up geopolitical tension as the US contemplates expanding their sanctions against North Korea radically. Although the market has grown a bit numb to North Koreas missile testing, this hydrogen bomb test presents a radical escalation.

Our range for the day : R 12.85 –R 13.08