Daily Commentary -07 December 2017

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

- USD / ZAR 13.5524 - EUR / ZAR 15.9817 - GBP / ZAR 18.1256-

Economic Events:

07 Dec : SA Mining Production - US Initial Jobless Claims

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

Market Commentary:

Since the start of the week, the rand has been enjoying support as markets price in the probability of Deputy President Cyril Ramaphosa taking over the reigns of the ruling ANC party. “So far, Vice President Cyril Ramaphosa seems to have the best prospects. The markets feel optimistic about that, which supports the rand further. But it remains very susceptible – a fact also reflected in the high implied volatility,” a Commerzbank analysts said in a note (source: Moneyweb). It appears that markets are allocating more weight to political factors, rather than macroeconomic factors, when it comes to decision-making. The optimism spurred by Cyril Ramphosa`s lead has been the majority contributor to the recent rand strength, and has also aided the rand against a strengthening US dollar. With the ANC`s elective conference scheduled to commence on the 16th of December, markets should be approached with caution as a very volatile period could ensue. On the JSE, resources and commodities stock suffered at the hands of the stronger local currency, with the Top40 index down 1.25% and the All Share down 1.06%.

In the US markets, the dollar continued to rake in gains on the back of the controversial tax-bill having been passed by the Senate over the weekend. Despite the recent fiscal optimism, monetary policy will soon come back into play as the US Federal Reserve is due to make their next interest rate decision at the upcoming FOMC meeting. Markets have priced in a 25 basis point increase with a 100% probability, making is reasonably safe to assume that the full effect of a potential hike has already been priced in.  If the Federal Reserve were to surprise the market by keeping interest rate at their current levels, the door could be opened for a plunge in the dollar. Markets will also be keeping a close eye on the jobs report, due to be released this coming Friday.

According to an article published by Reuters, “The European Commission proposed on Wednesday to create a euro zone pool of money to help countries deal with economic crises that are not of their doing, to support investment and give cash incentives for structural reforms to join the single currency. The Commission package, to be discussed by all European Union leaders except Britain on Dec 15, aims to unite the EU around the single currency after growing anti-EU sentiment across Europe and Britain’s expected departure from the bloc in 2019” (source: Reuters). The pound remains fragile with no Brexit deal on the table, and the EU summit around the corner. Markets are expected to be watchful as Prime Minister Theresa May attempts to resolve the Irish border controversy with Brexit negotiators.

Our range for the day : R 13.46 –R13.65