Daily Commentary - 05 October 2017

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

- USD / ZAR 13.5814 - EUR / ZAR 15.9912 - GBP / ZAR 17.9109 -

Economic Events:

05-Oct : US Jobless Claims ; Trade Balance

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

Market Commentary:

On Wednesday, the rand retraced some of its losses against the US dollar after falling to a near six-month low. The dollar rally that was brought on by comments from Janet Yellen, Chair of the US Federal Reserve and President Donald Trump, subsided as US treasury yields stabilised and new fears concerning Janet Yellen`s successor entered the market. Despite the recent rand strength relative to the US dollar, the local currency still remains highly volatile with the imminent medium-term budget policy statement and the ANC`s upcoming elective conference. Ratings agencies in particular will closely monitor the budget plan for any fiscal slippage. Also, September private sector activity in SA dropped at the fastest rate in 17 months as employment, output and new orders declined.

On the JSE, the Top40 index traded up 0.8% and the All Share up 0.7%. According to an article published by Bloomberg, “…Political turmoil, the risk of a widening budget deficit, a weakening currency and the prospect of a credit downgrade to junk would usually put investors off a country’s bonds. Not when it comes to South Africa. The lure of the highest yields among emerging-market peers is proving irresistible, with foreign investors buying a net 18 billion rand ($1.3 billion) of South African bonds in September, the most in a month since March. That brought inflows this year to 68 billion rand and foreign ownership of the country’s local-currency debt to about 45 percent, compared with 20 percent for Turkey and 28 percent for Russia.” (Source: Bloomberg.com). In other rand news, social media users are speculating whether Zimbabwe will be dropping the US dollar, and instead adopt the rand as its new official currency. A recent report by the SABC suggested that President Robert Mugabe might propose the adoption of the rand during his visit to South Africa.

In the US, the effects of Hurricanes Irma and Harvey have spilled over into private-sector ADP payrolls, showing a sharp decline from the 228,000 increase in August to a 135,000 increase for September. With the ADP data serving as a forerunner  for Friday`s US nonfarm payrolls data, a weaker than expected outcome could dampen expectations of a December interest rate hike. Thus far, an 80% probability has been priced in by markets. President Donald Trump is also expected to choose Janet Yellen`s successor within the next few weeks, with markets anticipating a more dovish candidate. A hawkish stance tends to support the dollar, while a more dovish stance is supportive of US bonds. In the European market, the euro showed slight gains against the US dollar, despite tension in Spain as the Catalan push for independence. Markets have shifted their attention to an upcoming speech from Mario Draghi, President of the European Central Bank, to determine if any progress has been made in recent Brexit talks. In the UK, the pound also raked in modest gains against the US dollar. The services sector saw another month of modest growth putting the economy on course for another subdued 0.3% expansion in the third quarter.

Our Range for the day: R13.5000 - R13.7000