Daily Commentary - 07 September 2017

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

- USD / ZAR 12.8000 - EUR / ZAR 15.3007 - GBP / ZAR 16.7034 -

Economic Events:

07-Sep: SA Manufacturing Production - EU Interest Rate Decision - US Initial Jobless Claims

08-Sep: No Data of real importance

Market Commentary:

The rand has rallied to a two and a half month high, peaking at 12.74 by yesterday evening. This opens up the door to a further move towards the 12.60 level. Now there could be a variety of reasons for this move. One the one hand, the US status. The US has just been hit by Hurricane Harvey and is now facing the most powerful Hurricane ever recorder, Irma. Damage costs have already been estimated at $200bn as Irma bears down on Florida. Another development coming out of the US is the fact that Vice Chair of the Federal Reserve, Stanley Fischer, has announced his early resignation effective October. Fischer always provided us with a more hawkish rhetoric and the fact that he has left now leaves the Fed in a more dovish state of affairs. Cohn is out of the front- running for Fed chair which now leaves only Yellen’s renewal or Kevin Warsh as favourites. A mixture of these three developments, coupled with the North Korea threat put the Greenback on the defensive and is struggling to gain any sort of traction and stage any meaningful recovery. On the debt ceiling front, Trump surprised all by cutting the deal with the Democrats to push through funding for Hurricane Harvey aid and attach extensions to the budget and debt ceiling issues that were looming at the end of September.

In SA markets, we open today at 12.79 against the Greenback. However, the fact that SACCI’s business indicator has slumped to the lowest reading in three decades while SA Business Confidence Index has fallen to the lowest levels since the global financial crisis in 2009 mixed with uninspiring growth data and a weak business sentiment makes the recent Rand run a bit of a confusing topic to back up. The assumption that all this depressing, superficial data should result in ZAR weakness is to misunderstand what ultimately drives ZAR behaviour. More important than focusing on just the numbers is to understand the cross-border flow implications of this data to establish the real supply and demand dynamics for ZAR which result.

The Euro has recently been on the best run in a decade but any comments coming from ECB president Mario Draghi have, for the most part, been uninspiring as he isn’t convinced that the recent rebound in inflation will stand the test of time given the fact that wage growth remains sluggish. The ECB is therefore expected to keep policy unchanged today. However this meeting could still hold some significance as the market seeks guidance on how and when the ECB might begin tapering its QE program.

Our Range on the day:  R12.75 – R12.90