Daily Commentary - 07 August 2017

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

- USD / ZAR 13.0534 - EUR / ZAR 15.3076 - GBP / ZAR 17.1203 -

Economic Events:

07-August: SA  Baleka Mbete Announcement

08-August: SA Vote of No Confidence

09-August: No data ( SA Public Holiday)

10-August: SA Mining Production ; Manufacturing Production - US Initial Jobless Claims ;PPI Data

11-August: US CPI Data

Market Commentary:

South Africa's rand fell to a new three-week low against the dollar on Friday as strong U.S. jobs data coupled with local economic and political risks dented investors' appetite for our currency. At 17h20, the rand traded at 13.4575 per dollar, 0.5% weaker than its New York close on Thursday. The rand attempted a recovery in the session, touching a day high of 13.3150, but gave up the gains after a strong U.S. July payrolls report attracted traders to the dollar. The rand, trading at its weakest levels since 12th July, has this week also been hit by fears of a third credit rating downgrade to "junk" ahead of review by Moody's on 11th Aug. "Although our base case scenario is for no further credit rating downgrades this year, the risk remains high over the medium term if economic growth does not revive, particularly in view of the associated fiscal risks," Investec economist Kamilla Kaplan wrote in a note. The market was also cautious ahead of a vote on a motion of no-confidence in President Jacob Zuma on 8th Aug..  If the motion succeeds, Zuma and his entire cabinet would have to step down. On the bourse, stocks ended slightly higher with Mediclinic on top of the leader board on the blue-chip index after brokerage house Credit Suisse raised it price target on the private hospital group.

On the Domestic front:

A statement issued by Parliament, on Sunday evening, said Mbete will address the media on the voting procedure to be followed when the motion is debated on Tuesday. This comes as the country waits eagerly to hear if the vote of no confidence in Zuma will be done through a secret or open vote  -  National Speaker of Parliament, Baleka Mbete is to announce her decision on this at 15h30 this afternoon.

South Africa's mineral resources department has withdrawn its plan to suspend the issuance of new mining and prospecting rights, a move critics said could hamper growth and investment. Mines Minister Mosebenzi Zwane also met with Sibanye Gold on Friday to express his concerns about layoffs at the company, which is restructuring its operations in a move that could affect 7,400 of its employees. Rival AngloGold Ashanti and Anglo American Platinum have in recent weeks said a combined total of 18,000 jobs were on the line. Unions have expressed concern over the job losses at a time when Africa's most industrialised economy has sunk into recession and had its credit rating downgraded to junk by two of the three main credit rating agencies, plus unemployment is at a 14-year high of 27.7% and business confidence is sagging. The minerals department said in a statement that it would not go ahead with its proposed the moratorium on new prospecting and mining rights, which Zwane had proposed last month.  The Chamber of Mines, which represents mining companies such as Anglo American and Sibanye Gold, had challenged the proposed moratorium in court.

On the International data front:

U.S. employers hired more workers than expected in July and raised their wages, signs of labour market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio. On Friday afternoon we saw the U.S. Labour Department announcing that nonfarm payrolls increased by 209,000 jobs last month amid broad-based gains. June's employment gain was revised up to 231,000 from the previously reported 222,000. Average hourly earnings increased nine cents, or 0.3%, in July after rising 0.2% in June, which was the biggest rise in five months. On a y-o-y basis, wages increased 2.5% for the fourth straight month. "The Fed set a low bar for balance sheet normalization to begin in September, and today's number cleared that bar with ease" said Michael Feroli, economist at JPMorgan in New York. Although the economy is near full employment, wage growth has not been strong in part because many of the jobs being created are in low-wage industries. (Last month, restaurants and bars added 53,100 jobs). July's monthly increase in earnings could, however, offer Fed policymakers some assurance that inflation will gradually rise to the U.S. central bank's 2% target. Economists expect the Fed will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its next policy meeting in September. The Fed bought these securities to lower interest rates in the wake of the 2007-2009 financial crisis.

Our Range for the Day R13:32 - R13.50