Daily Commentary - 08 January 2018

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

- USD / ZAR 12.3716 - EUR / ZAR 14.8590 - GBP / ZAR 16.7565 -

Economic Events:

08 Jan : Euro Zone Consumer Confidence Retail Sales

09 Jan : Euro Zone German Industrial Output

10 Jan : No data of real importance

11 Jan : SA Manufacturing Production - US Initial Jobless Claims ; PPI Data

12 Jan : US CPI Data ; Retail Sales

Market Commentary:

Following what has been one of the most volatile trading years for the rand, the death throes of 2017  finally provided the rand with much-needed support as the ANC`s leadership race entered its final stage in mid-December. It was official, Cyril Ramaphosa successfully took over leadership of the ruling ANC party from President Jacob Zuma, which played into the hands of many market participants and aided the rand in strengthening by almost one rand against the US dollar. To put things into perspective, after President Jacob Zuma`s shock ouster of former Finance Minister Pravin Gordhan, nine months needed to pass for the local unit to fully retrace its losses. Now with the hype surrounding the ANC`s elective conference wearing-off, and the rand rally losing steam, economists are left scratching their heads as to why the rand remains so resilient, with some attributing the strength to a potential Zuma ouster. However a look at the derivatives market might paint a darker picture, with options to sell the local currency picking up in price, suggesting a potential selloff.

In the US market, the dollar kicked-off the new year on the defensive as it ended 2017 near a three-month low against other major currencies, resulting in one of the worst trading years in more than a decade. The following is an excerpt from a Reuters article: “The dollar retreated in 2017, partly because economic growth picked up outside the United States, with other countries’ central banks moving towards tighter monetary policy, lessening the perceived divergence between the Federal Reserve and others. The greenback may lag further against its peers in 2018 as investors expected other major central banks to reduce their stimulus while the Federal Reserve has signalled it would raise interest rates further, analysts said. “The dollar will face more headwinds in 2018,” said Chris Gaffney, President of World Markets at EverBank in St. Louis, Missouri. “The Fed won’t be going at it alone in terms of taking off more gas from the stimulus pedal.”

In European markets, the euro is currently trading near a three-month high. “Bets the European Central Bank might consider raising interest rates by the end of 2018 due to evidence of higher inflation and business activity in the euro have lifted the euro, which was poised for its best yearly performance versus the greenback in 14 years” (source: Reuters). Markets will be preparing for the Italian election coming up in March, as well as the European Central Bank`s monetary stimulus agenda.

In the UK, the pound steadily hovered through the last few weeks without any major movements as investors eagerly await new developments in the Brexit negotiations, largely ignoring economic data. “The strategists, who were polled in the first week of 2018, were not brimming with optimism on how the next stage of talks will go, but most do not think the pound is set for another major fall” (source: Reuters).

Our range for the day : R12:28 - R 12:45