Daily Commentary - 06 September 2017

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

- USD / ZAR 12.9366 - EUR / ZAR 15.4492 - GBP / ZAR 16.8754 -

Economic Events:

06-Sep: SA SACCI Business Confidence - US Trade Balance  ; Services PMI

07-Sep: SA Manufacturing Production - EU Interest Rate Decision

08-Sep: No Data of real impotance

Market Commentary:

The Rand has managed to hold on its gains against the Greenback as SA GDP figures surprised to the topside, rebounding with a solid 2.5% growth in the second quarter. The biggest contribution to this growth was our agricultural sector which added 33.6% growth and our mining sector which gained 3.9% during the second quarter of 2017. The fact that GDP growth for the second quarter was driven primarily by the productive sectors of the economy should be seen as offering some relief. This is a massive improvement and has essentially pulled us out of a recession but still leaves a challenging outlook for the Rand. The Rand initially reacted very positively to this news, hitting an intra-day high of 12.86 but has since softened to where we open today at 12.92. At the same time SA PMI for August fell below the breakeven 50 mark.

In US news, Hurricane Irma, is now bearing down on the on South Florida and has been clocked as the most powerful storm ever recorded over the Atlantic which may make Hurricane Harvey look like a mere afternoon drizzle compared.  The projected cost of damage from hurricane Irma has already been ball parked at around $200bn. US factory orders were the only notable release yesterday afternoon which decreased by 3.3% while core capital goods were notably revised up to 1.0% on the month, their best reading since January.  The outlook for the dollar also remains negative as Fed members Brainard and Kashkari repeated their recent dovish rhetoric about how inflation is not high enough to raise interest rates.  Tensions continue to remain high around North Korea and their weapons testing.  The ECB rate announcement set to be made tomorrow has taken centre stage and could put further pressure on the Greenback.

UK Services PMI fell to 53.2 in August, a touch lower than what was expected by analysts, the slowest expansion in nearly a year.  This decline in growth pressures has essentially been driven by a slowdown in consumer spending as we start to see a bit of deterioration in real wage growth, weaker sterling and rising levels of uncertainty as Brexit fears continue to mount.

Today we should look for a retest of the levels between 12.86/12.88.

We put the range today between R12.80 - R13.02.