Daily Commentary - 08 February 2018

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

- USD / ZAR 12.0660 - EUR / ZAR 14.8027 - GBP / ZAR 16.7508 -

Economic Events:

08 Feb : SA Manufacturing Prod NSA ( y/y)

09 Feb : No data of real importance

Market Commentary:

On the local front:

The rand weakened from R11.88 to the dollar on Wednesday to R12.06 on Thursday morning following ANC president Cyril Ramaphosa’s statement indicating President Jacob Zuma’s exit would drag on for several more days. At 6.30am, the rand was trading at R14.79 to the euro from Wednesday’s R14.67, and at R16.74 to the pound from Wednesday’s R16.57. While the rand’s Ramaphosa rally stumbled, the JSE’s all share index rebounded 0.9% to 56,886 points on Wednesday.

Statistics SA is scheduled to release December’s mining production and sales figures at 11.30am and December’s manufacturing production and sales figures at 1pm. Investec Bank economist Kamilla Kaplan forecast mining production growth to have slowed to about 5.7% in December from 6.5% in November. Using the Absa manufacturing purchasing managers index (PMI), which declined to 42.7 points in December from 48 points in November as a guide, Kaplan said the Stats SA report was likely to show factory output growth slowed to 0.5% in December from 1.7% in November. December’s mining and manufacturing data will provide clues on SA’s fourth quarter gross domestic (GDP) growth. Kaplan said mining may have made a negative contribution to the fourth quarter’s GDP because the three-month rolling average in November was negative 1.1%. For manufacturing, the quarter-on-quarter seasonally adjusted measure used to calculate GDP is likely to be positive. (Business Day).

Cape Town’s water crisis is likely to have far reaching consequences, not only on the local economy, but on the national GDP. The water crisis threatens further downgrades from ratings agencies, hampering much needed investment, economists have warned. In a statement last week, Moody’s Investor Services indicated that the water crisis poses a credit risk to Cape Town’s debt rating, which is currently at the lowest level of investment grade – Baa3. Moody’s added that the city was on review for a downgrade. The ratings agency also said that due to the marked income inequality in the City, Cape Town’s water crisis posed a possible threat to social order. It said the crisis would have wide-ranging consequences for the city finances and economy. (Fin24) 

 

On the International front:

 

The dollar hovered above its recent lows against major rivals early on Thursday, benefiting from the euro's weakness and higher U.S. yields but capped by concerns about recent equity market volatility. Against a basket of six major rival currencies, the dollar was steady on the day at 90.242, not far from Wednesday's session high of 90.40, its highest in two weeks. "The dollar/yen seems to be capped by uncertainty in the equity markets, which will likely keep it in a range, but maybe the equity market downturn won't last for long, because the world economy is solid." said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

For its part, the European Central Bank is expected to shut the door on its multi-billion euro a month bond purchases program this year, with a majority of economists saying that ought to happen much sooner. The euro has risen against the dollar on those expectations, which would bring closer the date when the ECB can start closing the interest rate gap with the United States. Having recorded its best monthly performance in January against the dollar since its inception, the euro is forecast to gain. The single currency is forecast to trade at around the current level of $1.23 in a month, $1.24 in six and $1.25 in a year. While predictions across the forecast horizon are the highest in over three years, the 12-month euro forecast suggests a gain of a touch over one percent from here, similar to what was forecast in the January poll.

Sterling's big rise this year - including its strongest monthly rally since 2009 in January - is over, and concerns over Brexit will start weighing the currency down again, a Reuters poll of market strategists showed on Thursday. The pound is down around 10.5 percent on a trade-weighted basis since the June 2016 referendum when Britain voted to leave the European Union. But it is up about 6.5 percent from the low point it reached in October 2016. Compared with equity markets, currencies have remained relatively calm in the last few days. Although sterling fell for the fourth straight day on Wednesday, it was still trading around $1.39. Looking ahead, we believe the risk of deteriorating fundamentals will remain, while Brexit-related uncertainty might rise again," analysts at Credit Agricole noted. (Reuters).

Our range for the day : 11: 85 – 12 : 12