Daily Commentary - 06 March 2018 | Merchant West

Daily Commentary - 06 March 2018

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

- USD / ZAR 11.8302 - EUR / ZAR 14.5960 - GBP / ZAR 16.3664 -

Economic Events:

06 March : SA GDP - US Factory Orders - Durable Goods Orders

07 March : SA SACCI Business Confidence - EC GDP - US MBA Mortgage Application ;ADP Employment Change ;FED Reserve release Beige Book

08 March : EC ECB Main refinancing rate - US Initial Jobless Claims

09 March : US Change in Non-Farm Payrolls ; Unemployment rate

Market Commentary:

SA fourth quarter GDP figures are due to be released today at 11:30AM and is likely to print 1.5% q/q, which will bring 2017 GDP growth to 0.9% from 2.0% q/q during 3Q17. Agricultures robust growth of 44.2% q/q in 3Q17 will not be repeated given the growing adverse impact of the Western Cape drought. Mining production contracted by 6.0% q/q while manufacturing grew by 6.4% q/q. The services sector is likely to be the biggest driver of growth. In his first public comments, the new old Fin Min Nene, said that he is confident that the budget presented is a credible story and that this was enough to avert a Moody’s downgrade. (Moody’s is due to announce its rating decision on 23rd March). Nene has also indicated that National Treasury might revise its growth forecast due to improved consumer and business confidence. On fiscal policy, Nene constructively said that, “We should not be borrowing for consumption. We need to be borrowing for the right reasons.” Parliament will start debating the nationalisation of the SARB today, which may generate some nervousness in the market. The SARB has repeatedly stressed that ownership of the reserve does not affect its independence and we believe that whatever parliament agrees, it will not involve tampering with that independence.

The Rand staged a 20 cent recovery yesterday, strengthening from a low of 12.02 and has opened today around the 11.81 level as the dollar dropped overnight. SA 10 year benchmark bonds remained relatively unchanged. Traders are saying that the Rand is at a technical crossroads, with short term gauges indicating some further losses but that the long term case is still favouring more gains.

Investors now believe that Trumps proposed tariffs on steel and aluminium imports will not translate into policy as both Republicans and Democrats oppose the plan. With little news coming out today, any move in the Rand should be directly linked with what GDP Growth rate we post for the fourth quarter. Investors will be eyeing out Fed Reserve chair Dudley’s speech this afternoon in order to find any more clues about how many times the Fed decides to hike rates this year.

Range:  11.70 - 12.00