Daily Commentary - 09 April 2018

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

- USD / ZAR 11.9928 - EUR / ZAR 14.7177 - GBP / ZAR 16.9052 -

Economic Events:

09 April : No data of real importance

10 April : SA Manufacturing Production - US PPI

11 April :US CPI ; FOMC Meeting Minutes - SA BER Consumer Confidence

12 April : EC Industrial Production - SA Mining Production - US Initial Jobless Claims

13 April : GE CPI EU Harmonised - US University of Michigan Sentiment

Market Commentary:

Local Front:

South Africa's rand weakened on Friday as resurgent U.S.- China trade tensions and concerns about a slow recovery in the domestic economy soured investor sentiment, while stocks edged higher. At 17h00, the rand was 0.65% weaker at 12.06 per dollar compared to Thursday's close. President Donald Trump on Thursday directed United States trade officials to identify tariffs on $100 billion more Chinese imports, upping the ante in an already high-stakes trade confrontation between the world's two largest economies.

The escalating tensions have hit investor demand for emerging market currencies. The rand was also undermined by concerns that momentum in the economy has slowed since a sharp rebound in the wake of Cyril Ramaphosa’s election as leader of the ruling African National Congress in late December. Data this week showed that business activity in South Africa slowed in March, while business confidence slipped. Ramaphosa, who was elected South African president in February after the resignation of scandal-plagued Jacob Zuma, has promised to implement economic reforms to boost growth.

"Miracles do not happen -- and things change slowly," Commerzbank analysts wrote in a note. "The data signals that the recovery of the South African economy is likely to progress slower than first thought and will require patience. “Stocks rose as the market maintained a technical rally after straying into oversold territory earlier this week, according to momentum indicators tracked by chartists”.

The dollar steadied this morning, having retreated late last week again due to concerns over U.S. / China trade tensions and following data that showed the U.S. economy created the fewest jobs in six months in March. The dollar index against a basket of six major currencies inched up 0.1% to 90.189 after a drop of 0.4% on Friday.

International Front:

The dollar index had set a one-month high of 90.597 ahead of the U.S. nonfarm payrolls report data on Friday but later lost some steam, weighed down by concerns about the U.S.-China trade dispute and the disappointing U.S. jobs data. China warned on Friday it was fully prepared to respond with a "fierce counter strike" of fresh trade measures if the United States follows through on President Donald Trump's threat to slap tariffs on an additional $100 billion of Chinese goods. Increasingly combative statements from Washington and Beijing have stirred fears of a full-blown trade war that could hurt global economic growth, though investors are holding out hope that negotiations will result in a far less damaging compromise.

Risk aversion appears less intense than it did a few weeks ago, partly due to hopes for negotiations between the United States and China toward a pragmatic solution, said Shinichiro Kadota, senior strategist for Barclays in Tokyo. “We’re no longer in a phase where the dollar keeps falling persistently against the yen," Kadota said. "But at the same time, the (dollar's) upside will likely be heavy, given the concerns over a trade war, as well as range-bound moves in U.S. yields and the end of one-way rises in U.S. equities," Kadota added.

The euro slipped 0.1% to trade at 1.2272 against the greenback, but traded above a one-month low of 1.2215 set before Friday’s U.S. jobs data.

International data front:

The U.S. economy created the fewest jobs in six months in March as a boost from milder temperatures faded, but a pickup in wage gains pointed to a tightening labor market, which should allow the Federal Reserve to further raise interest rates this year. Nonfarm payrolls increased by 103,000 last month, with construction and retail sectors shedding jobs. This was the smallest gain since last September and followed a 326,000 surge in February, the largest in more than two years.

Temperatures returned to normal in March, with snowstorms in some parts of the country. The pullback in job gains is likely temporary as layoffs are at historic lows and other independent labor market indicators were strong in March. "Inclement weather was the primary culprit for the slowdown in the pace of job growth in March," said Joseph Song, an economist at Bank of America Merrill Lynch in N.Y.. Employment gains averaged 202,000 jobs per month in the first quarter, highlighting underlying labor market strength. The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working-age population.

Fed Chairman Jerome Powell told the Economic Club of Chicago on Friday that lack of robust wage gains suggested the labor market was not "excessively tight" and that he would be "looking for an additional pickup in wage growth as the labor market strengthens further." The U.S. central bank increased borrowing costs last month and forecast two more interest rate hikes this year. “In sum, no change in the Fed's trajectory," said Steven Blitz, chief U.S. economist at TS Lombard in New York. "If anything, the wage data are beginning to strengthen the argument for three more hikes this year."

Our Range for the Day   :-      R11.8500   -   R12.0500