Daily Commentary - 08 March 2018

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

- USD / ZAR 11.8654 - EUR / ZAR 14.7076 - GBP / ZAR 16.4794 -

Economic Events:

08 March : EC ECB Main refinancing rate - US Initial Jobless Claims

09 March : US Change in Non-Farm Payrolls ; Unemployment rate

Market Commentary:

The Rand has slipped as investors dumped risky assets after a key free trade advocate, Gary Cohn, resigned from the Trump administration, fanning fears that the President might trigger a trade war. Risk sentiment, however, steadied as markets digested the bog resignation with the Trump administration showing some flexibility in giving exemptions to the latest steel/aluminium tariffs. This helped the dollar index put a floor off the 89.50 area again. While traders continue to worry about Trumps future decisions, the scenario continues to favour long-rand bets especially after Tuesday’s economic growth data surprised on the upside. “This is good news in view of Moody’s rating review at the end of the month - as higher growth facilitates the urgently required consolidation of the public finances,” said analysts at German-based Commerzbank. Traders agree that the Rand is most likely to remain in a range between 11.50 and 12.00, with investors on the defensive and keeping an eye on the possible reversals if a trade war breaks out. Most EM local bonds were on the defensive yesterday and SAGBs was among them with modest losses. Yields were up just 1-2bpts across the curve with no obvious curve bias. Risk sentiment perked up a bit, but the ZAR was not among the beneficiaries and markets generally traded in a muted and defensive fashion with the big offshore event risks coming today from the ECB MPC and tomorrow from the BOJ MPC and US payroll figures.

Public Enterprizes Minister Gordhan said yesterday that SA could easily see growth of 2-3% in the coming years and that SOE’s must have fairly self-sufficient business models that aren’t a burden on state finances. Ramaphosa also got a high profile vote of confidence from New York’s former mayor, Michael Bloomberg. He said after meeting Ramaphosa that the president is boosting faith in the economy and this has already helped business confidence improve to its best levels since 2015.

Although the ECB and BOJ are still expected to hold pat, as RBA did, as weak inflation remains stubborn, however, the ECB may signal its pathway to ending quantitative easing. In the US, centrist voter, Bostic has joined the 3-hike consensus of the FOMC. Three rate hikes for the US in 2018 are now fully priced in but front end US treasuries are yet to respond.

Our range for the day : R11.7000 – R12.0000