Daily Commentary - 04 September 2018

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

USD / ZAR 14.9547 - EUR / ZAR 17.3049 - GBP / ZAR 19.2021 -

Economic Events:

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:

South Africa's rand slipped early on Tuesday, as investors waited for second-quarter gross domestic product (GDP) figures due out later in the day. At 08h18, the rand traded at 14.9150 versus the dollar, down 0.2 percent on the day. The GDP data - due to be released at 11h30 - will reveal whether the sputtering South African economy has fallen into recession, after growth fell by 2.2 percent in the first quarter. South African President Cyril Ramaphosa has staked his reputation on kick-starting growth after a decade of stagnation, but he has found it hard to get the economy firing on all cylinders since replacing Jacob Zuma in February.

Analysts polled by Reuters expect second-quarter economic output to rise by 0.6 percent quarter on quarter, enough for the country to narrowly avoid a recession. The rand fell by more than 1 percent on Monday, as appetite for the currency was dented by a dismal manufacturing survey and weakness elsewhere in emerging markets. Financial turmoil in Turkey and Argentina has been a major contributor to rand weakness in recent weeks, as investors have dumped emerging market assets seen as riskier than those in developed markets.

Local data front - South Africa's seasonally adjusted Absa Purchasing Managers' Index (PMI) fell to 13-month low in August driven by large declines in new sales, business activity and also possibly by talk over land reforms, a survey showed on Monday.

The index, which is compiled by the Bureau for Economic Research and gauges manufacturing activity in Africa's most industrialised economy, fell to 43.4 in August from 51.5 in July, its lowest reading since July 2017 and well below the 50-mark separating contraction from expansion. The deterioration was driven by sharp declines in the new sales orders index as well as the business activity index, Absa said in the release, a reflection of renewed weakness in domestic demand as businesses seemed to favour exports.

The South African government's plans to expropriate land without compensation to redress racial disparities in ownership also unnerved markets because of concerns about wider threats to property rights, likely also affected the survey. “The significant declines in August are surprising as it is hard to imagine that the underlying economic conditions deteriorated as rapidly as reflected by the main PMI subcomponents," the bank said. "The responses of purchasing managers may have been influenced by the further ratcheting up of the land debate during the past month," said Absa.

International Foreign Exchange - The dollar firmed on Tuesday as investors bid up safe haven assets amid tensions around global trade and strains in emerging market currencies, while the Australian dollar pared losses after Australia's central bank kept interest rates on hold. Fears of a hit to global growth from U.S. President Donald Trump's 'America First' protectionist policies have kept markets in a state of heightened anxiety for much of this year.

On Saturday, Trump said there was no need to keep Canada in the North American Free Trade Agreement and warned Congress not to meddle with the talks to revamp NAFTA or he would terminate the trilateral trade pact. "It seems that the dollar, helped by rising interest rates, and the yen, the typical haven currencies, are supported by the confusion in the rest of the world," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. At 06h30, the dollar index against a basket of six currencies was 0.1 percent higher at 95.231, nearing its highest level since Aug. 27.

The dollar's status as the world's reserve currency tends to attract safe haven bids in times of market turmoil and political tensions. The Australian dollar rose 0.06 percent to $0.7216, as the Reserve Bank of Australia decided on Tuesday to keep its cash rate at 1.5 percent, as widely expected. The euro was down 0.15 percent at 1.1601 against the greenback. Data released on Monday showed euro zone manufacturing growth slowing to a near two-year low in August as optimism dwindled due to the lingering threat of a global trade war.

Our range for today : R 14.8000 - R 15.2000