Daily Commentary -08 August 2017

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

- USD / ZAR 13.2163 - EUR / ZAR 15.6096 - GBP / ZAR 17.2329 -

Economic Events:

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 assets gained on Monday with the rand surging as much as 1.7 percent in part because a parliamentary speaker allowed a secret ballot on yesterday’s vote of no-confidence against President Jacob Zuma. The prospect of a secret ballot raises the chances of the departure of Zuma, which traders see as a net positive for the rand. At 15h02, the rand firmed 1.17 percent to 13.2625 per dollar, giving up some of the gains after strengthening to 13.1825 shortly after National Assembly speaker Baleka Mbete announced the decision. The decision could embolden members of the ruling African National Congress (ANC) to vote against Zuma and puts him in a precarious position as he struggles to fend off opposition accusations of corruption and mismanaging the economy. "I still think the vote will fail, there is maybe a 30 percent chance of success, but it won't be truly secret and there will be intense pressure on MPs. Ultimately a secret ballot wouldn't have been offered unless Zuma was confident of winning," said Nomura emerging markets economist Peter Attard Montalto.

The ANC has 249 seats in the 400-seat parliament and the opposition controls 151 seats, so it would take 50 ANC lawmakers backing the opposition to vote Zuma and his cabinet out.If the motion is successful, Zuma would be removed as state president but would remain as ANC leader until December, when he is due to step down and a new leader elected in his place.Should he be forced to step down as South Africa’s president, the speaker takes over and the National Assembly is expected to elect a new national leader within 30 days.As the largest party in parliament, ANC would be expected to select the new president and government. The ANC — once all-powerful as heir of South Africa’s anti-apartheid struggle — has lost popularity under Zuma, underscored by its worst electoral showing in over two decades of power in local elections last year.

Domestic front:

South Africa's unemployment rate stayed at a 14-year high in the second quarter, with the statistics agency saying on Monday the country was in a "precarious position" of not creating enough jobs to make a dent in poverty. The unemployment rate remained unchanged at 27.7 percent of the labour force in the second three months of this year, with the absolute number of unemployed down slightly to 6.177 million from 6.214 million, data from the statistics office showed 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. In July Stats SA said nearly a fourth of all households are in poverty. Statistician General Pali Lehohla said the real economy, which includes mining and manufacturing, was not creating enough employment. "We are in a very precarious position as South Africa in as far as exiting poverty. The type of strategy that can make us exit poverty is when people are working," Lehohla said. Chief economist for Africa at Standard Charted, Razia Khan, said agriculture and mining were the only sectors that grew meaningfully in the first quarter of this year but actually experienced job losses in the second quarter. "With a significant uplift to growth performance unlikely to be on the horizon just yet, there is little to suggest a meaningful pick-up in job creation for some time," she said.

International front:

The dollar steadied in Asian trading on Tuesday, maintaining most of the gains it made on last week's robust employment data that kept hope alive that the U.S. Federal Reserve could still increase interest rates this year. The dollar index, which tracks the greenback against a basket of six major rivals, was steady on the day at 93.412. It held well above last week's 15-month low of 92.548, though was shy of Friday's post-jobs data high of 93.774 as investors pondered the timing of the U.S. central bank's next tightening steps. "Looking to the Fed futures market, there's less than a 50 percent chance of one more rate hike this year," said Bill Northey, chief investment officer at U.S. Bank Private Client Group in Helena, Montana."The September meeting is where we are anticipating the identification of the start date and we would not be surprised to see it start in an almost an immediate fashion," he said.U.S. producer prices for July due on Thursday and consumer price index figures on Friday will give investors a clue about the extent to which the strengthening labour market is spilling over into inflation.

Our range for the day: R13.10 - R13.40