Daily Commentary - 06 December 2017 | Merchant West

Daily Commentary - 06 December 2017

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

- USD / ZAR 13.5347 - EUR / ZAR 16.0085 - GBP / ZAR 18.1375-

Economic Events:

06 Dec : SA SACCI Business Confidence

07 Dec : SA Mining Production - US Initial Jobless Claims

08 Dec : US Change in Nonfarm Payrolls - US Unemployment Rate

Market Commentary:

Ever since Finance Minister Malusi Gigaba outlined the poor state of the South African economy through his first budget speech, the rand has been struggling to regain some traction against other major currencies, up until now. On Tuesday, a combination of surprising GDP figures and a business-friendly Cyril Ramaphosa provided the rand with much needed support. Deputy President Cyril Ramaphosa is enjoying a firm lead ahead of his opposition as the ANC`s elective conference draws closer. The quarterly GDP growth figure came in at 2%, exceeding expectations of only 1.7% for the third quarter of 2017. South Africa experienced GDP growth of 0.8% year-on-year and 1% year-to-date, an excess over what was forecasted by the SARB and National Treasury.  “In the space of seven minutes, traders had to digest data showing the economy grew a better-than-forecast 2% quarter-on-quarter between July and September, an almost 10% jump in the trade surplus in the period to R71bn and a R3.3bn domestic bond auction at which investors bid for more than double the amount of debt offered” (source: Fin24). “The currency and South African government bonds have been on a good run over the last week on easing political risk, and this remains the key driver,” Christopher Shiells, an analyst at Informa Global Markets in London told Bloomberg. Despite the improved economic outlook for South Africa, markets still seem to allocate more weight to the upcoming ANC elective conference. The lead generated by Deputy President Cyril Ramaphosa has been the most significant contributor to the rand`s recent bout of strength, but should the end result of the December conference disappoint, a highly volatile period could ensue.

In the US markets, the dollar index which tracks the greenback against a basket of six major currencies, traded down 0.1% on Tuesday. The dollar found support earlier in the week after the Senate passed the controversial tax-bill over the weekend. The House of Representatives, controlled by the Republican Party, passed a vote on Monday for formal negotiations with the Senate regarding the new tax legislation to commence. Despite the optimism surrounding the new tax legislation, the dollar is under pressure as the threat of a possible government shutdown looms.  “Talk of a U.S. government shutdown is again in the air. Funding for the vast menu of federal activities, foreign and domestic, is due to run out after Dec. 8, and Republicans and Democrats in the U.S. Congress are negotiating a spending bill to carry beyond that date. Without a deal, the U.S. will encounter what’s officially called a "spending gap," which triggers a carefully prescribed, but still disruptive, halt to Washington’s work” (source: Bloomberg). The dollar is also further underpinned interest rate hikes expectations. “Fed funds futures prices show that investors expect the U.S. central bank to hike rates at its Dec. 12-13 meeting, with futures prices showing a zero percent chance of rates remaining at their current level of 1.00-1.25 percent” (source: Reuters).

In the UK market, the pound remains fragile after Prime Minister Theresa May failed to reach an agreement with the European Union regarding EU rules in Northern Ireland. In other news, Security officials believe they have thwarted an alleged plot to assassinate Theresa May by terrorists who would first bomb their way into Downing Street and then kill the prime minister, it has emerged (source: The Guardian).

On the JSE, Steinhoff International CEO Markus Jooste has resigned with immediate effect amid the retail giant’s admission of irregularities in its financial accounts that has sparked an investigation. Wiese, who is the present chairman of Steinhoff, will run the Johannesburg and Frankfurt-listed company on a temporary basis. Pieter Erasmus, the previous CEO of Pepkor Group, will join Wiese in an executive advisory capacity to assist with managing the group’s various retail interests globally. The retailer also announced that it has approached PwC to perform an independent investigation. (Source: Moneyweb)

Our range for the day : R 13.35 – R13.60