Daily Commentary - 09 January 2018

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

- USD / ZAR 12.4158 - EUR / ZAR 14.8328 - GBP / ZAR 16.8168 -

Economic Events:

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:

On the Domestic front:

South Africa's rand weakened more than one percent yesterday , succumbing to a resurgent dollar and some profit-taking after seven weeks of gains sparked by leadership changes in the ruling party and a rally in global commodity prices.

At 17h10 the rand was 0.90 percent weaker against the dollar, fetching 12.4150, after early falling more than 1.25 percent. The rand has seen volatile trade in the first weeks of the new year after a stellar 2017 that saw it rack up gains of 11 percent against the greenback.

Persistent rumours that President Jacob Zuma could be forced to step down before his term ends in 2019 supported some short-term gains in the rand, but the rally stalled in the face of technical barriers and economic fundamentals. The rand kicked-off trade on the back foot and fell further as U.S. traders came on line and unleashed bear plays, offloading positions as the currency again failed to break through a 12.30 technical resistance level.

The 10-day moving average kicked-in at 12.4235, and with little on the political news front, price-trend confirmation and lower global commodity prices spurred sellers back into the dollar.

"The previous week continued to see minimal market participants, corporate flows and extremely thin liquidity,'" said Nedbank's Reezwana Sumad in a note.

"Looking ahead at the coming weeks, focus will shift to the upcoming first ANC meeting with Mr (Cyril) Ramaphosa at the helm, and rumours continue of current president Jacob Zuma possibly to be removed..."

Bonds traded firmer with yield on the benchmark paper due in 2026 down 1.5 basis points at 8.55 percent. Stocks rose in line with global peers but the rally could soon face technical resistance, with momentum indicators tracked by some analysts suggesting the main indices are approaching overbought levels.

The blue-chip JSE Top-40 index gained 0.55 percent to close at 51,131.70 while the wider All-share index added 0.54 percent to 60,038.39.

 

International data front:

 

Economic sentiment in the euro zone rose more than expected in December and the business climate indicator hit new highs, European Commission data showed on Monday, underlining robust economic growth in the single currency area. The Commission's economic sentiment indicator rose to 116.0 points in December from 114.6 in November and well above the 114.8 point expectation in a Reuters poll.

It was the highest value of the indicator since October 2000. The record was the 119.0 set in May 2000.

Sentiment in the 19 countries sharing the euro was buoyed by a rise in optimism across all sectors -- in industry, services, retail trade, construction as well as services.

But the upbeat mood, while pushing up producer price expectations among manufacturers, has failed to increase consumer inflation expectations which are key to boost inflation to the European Central Bank target of below, but close to 2 percent. Inflation eased to 1.4 percent last month from 1.5 percent in November.

The monthly Commission survey showed that consumers' inflation expectation for the next 12 months fell to a four-month low of 13.6 points in December from 16.0 in November.

The ECB has said it would continue buying bonds at least until September and keep low interest rates "well past" then to raise inflation to its two percent target even though policymakers from the Netherlands, Germany and other northern countries have voiced their worries about an overly easy policy while economic growth is strong.

Range on the day: 12.32-12.48