Daily Commentary - 05 February 2018

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

- USD / ZAR 12.0747 - EUR / ZAR 15.0292 - GBP / ZAR 17.0344 -

Economic Events:

05 Feb : SA Standard Bank SA PMI - EC Markit Eurozone Services PMI - US Markit US Services PMI

06 Feb  : SA SACXI Business Confidence - US Trade Balance

07 Feb : No data of real importance

08 Feb : SA Manufacturing Prod NSA ( y/y)  - SA State of the Nation Address

09 Feb : No data of real importance

Market Commentary:

On the Domestic Front:

South Africa's rand firmed slightly on Monday after the governing African National Congress (ANC) party met President Jacob Zuma late on Sunday amid growing pressure for the leader to step down as head of state. At 08h45, the rand traded at 12.0700 per dollar, 0.14 percent firmer than its close on Friday. Zuma, who is battling corruption allegations, has been in a weakened position since he was replaced as leader of the ANC in December by Cyril Ramaphosa, the deputy president.


International Currency Front:

The dollar steadied on Monday after rallying on upbeat U.S. jobs data, which sent bond yields surging on the prospects of increasing inflation and hammered equities. The dollar index against a basket of six major currencies stood little changed at 89.127 after gaining 0.6 percent on Friday, when the U.S. payrolls report showed wages growing at their fastest pace in more than 8-1/2 years and fuelling inflation expectations. Futures markets  reacted by pricing in the risk of three, or even more, rate rises from the Federal Reserve this year. The jobs report provided a welcome relief for the greenback, which had slipped to a three-year low of 88.438 late in January on a range of factors including concerns about U.S. trade protectionism and perceptions of narrowing yield advantage.

The euro was steady at 1.2462 against the greenback, after losing 0.5 percent on Friday to pull away from a three-year peak of 1.2538 reached on Jan. 26.Near-term focus was on the German coalition talks set to continue later on Monday after Chancellor Angela Merkel's conservatives and the Social Democrats (SPD) failed to conclude negotiations in time to meet a self-imposed Sunday deadline. "The euro, along with the Australian dollar, the pound and some emerging market currencies, had enjoyed rich gains this year and perhaps reached unreasonable price levels," said Masashi Murata, senior strategist at Brown Brothers Harriman in Tokyo.

International Data Front:

U.S. job growth surged in January and wages increased further, recording their largest annual gain in more than 8-1/2 years, bolstering expectations that inflation will push higher this year as the labor market hits full employment. Nonfarm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, the Labor Department said on Friday. The unemployment rate was unchanged at a 17-year low of 4.1 percent. Average hourly earnings rose 0.3 percent in January to $26.74, building on December's solid 0.4 percent gain.

The robust employment report underscored the strong momentum in the economy, raising the possibility that the Federal Reserve could be a bit more aggressive in raising interest rates this year. The U.S. central bank has forecast three rate increases this year after raising borrowing costs three times in 2017."The acceleration in average hourly earnings growth punches a hole in the narrative that wage growth remains lackluster," said Scott Anderson, chief economist at Bank of the West in San Francisco. "The Goldilocks view of inflation is being sorely challenged right now." Fed officials on Wednesday expressed optimism that inflation will rise toward the central bank's target this year. Policymakers, who voted to keep interest rates unchanged, described the labor market as having "continued to strengthen," and economic activity as "rising at a solid rate."

Our range on the day: 12.00-12.12