Daily Commentary- 09 February 2018

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

- USD / ZAR 12.0900 - EUR / ZAR 14.8352 - GBP / ZAR 16.8959 -

Economic Events:

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

09 Feb : No data of real importance

Market Commentary:

Local Front:

South Africa's rand edged firmer on Thursday but remained above the crucial 12.00 mark against the dollar as the continuing stalemate over President Jacob Zuma's future capped demand. This morning, the Rand opened around the 12.13 levels, compared to close at around 12.08. Early trading locally saw low volumes and the unit drifting around 12.10 before buying interest, as traders in London and later New York came online, spurred the currency towards resistance level around 12.02.

The unit this week has struggled to push beyond last week's rally to 11.8500, a touch off its 2-1/2 year best, with optimism over the speedy removal of Zuma from office waning, leaving the currency open to profit-taking. On Thursday leaked comments from ruling African National Congress's Paul Mashatile revealed the party had been preparing to fire Zuma at the weekend, but a negotiated exit was now more likely as the incumbent dug in. "As long as the optimism about a fresh start in politics does not fade the rand is likely to trend stronger against the dollar," said analyst at Germany-based Commerzbank Alexandra Bechtel in a note.

Local Data Front:

South Africa's manufacturing output expanded for a third consecutive month, rising 2 percent year-on-year in December from revised growth of 1.5 percent in November, Statistics South Africa said on Thursday. Factory production on a month-on-month basis was up 1.1 percent and rose 1.5 percent in the three months to December compared with the previous three months.

International Front:

The dollar was little changed on Thursday against a basket of currencies in choppy trading, fading from a two-week high as investors reduced bets against the greenback on renewed turbulence in the stock and bond markets. The dollar's loss of upward momentum reinforced the view the currency is in a bear market trend. A sell-off across global stock markets since late Friday, and bets that the United States could see at least three interest rate hikes in 2018 due to improving U.S. fundamentals have propelled the dollar in recent days.

 

International Data Front:

The number of Americans filing for unemployment benefits unexpectedly fell last week, dropping to its lowest level in nearly 45 years as the labor market tightened further, bolstering expectations of faster wage growth this year. Initial claims for state unemployment benefits decreased 9,000 to a seasonally adjusted 221,000 for the week. "The extremely low level of claims is a sign of tightness in the labor market and suggests that February is shaping up to be another solid month for job creation," said John Ryding, chief economist at RDQ Economics in New York.

The Fed has forecast three rate increases for this year after lifting borrowing costs three times in 2017.

Range on the day: 12.03-12.185