Daily Commentary - 09 May 2018

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

USD / ZAR 12.6745 - EUR / ZAR 15.0021 - GBP / ZAR 17.1421 -

Economic Events:

09 May : SA SACCI Business Confidence - US MBA Mortgage Application ; PPI

10 May : CH CPI  - SA Mining Production ; Manufacturing Production - UK BOE rate announcement - US Jobless Claims  ;CPI

11 May : US University of Michigan Sentiment

Market Commentary:

The Greenback rally remained in play even as the latest gains petered out post Trump’s confirmation that the US will withdraw from nuclear deal. Risk-off response to the news mild so far, US equities closed flat with CHF modestly bid. Outcome had been generally expected, unclear what full extent of geopolitical fallout will be. Some broader pressures showing in the commodities universe amplify the pain on EM/high beta FX. Fed’s Powell though said the markets have gotten the Fed’s hawkish message and shouldn’t be surprised by its actions, affirming that Fed will press on with tightening cycle despite increase in volatility and other fallout. This saw the dollar Index notching new trend highs.

We saw the USD/ZAR open at 12.57.While the ZAR wasn’t among the major under-performers on the session, it too stayed bid with probes over 12.60 again and the market showing clear preference to trade off a long USD base. Evidence of more substantial local portfolio outflows is still forthcoming, adds to the defensive bias on the ZAR given its sensitivity to them in feedback loop fashion. ( Investec)

Local Front

President Ramaphosa spoke in parliament yesterday and notably flagged the SA banking sector in his remarks. He said it was excessively dominated by the big 4 and needed to be transformed with more competition to increase access to funding, especially for the poor. He also backed the creation of a state-owned bank. These policy proposals are part of the ANC’s platform so Ramaphosa is merely along party lines, but these ideals coupled with the desire to overhaul the ownership structure of the SARB ring alarm bells to the market over the risk of politically-directed credit creation.

Also speaking in parliament yesterday, Fin Min Nene said "there are risks to maintaining the expenditure ceiling over the medium term, which include the public service wage agreement and the financial position of several state-owned companies." Nene added that rebuilding South Africa’s revenue service is a top priority for NT in order to improve the efficiency and effectiveness of the tax collection in the country. The Fin Min also added that

South Africa will struggle to stick to its recent promise to curb spending, which recently helped prevent the country from being downgraded by global ratings agency Moody’s, if the deadlock over civil service wages is not resolved promptly.

The local card picks up today with the latest SACCI business confidence reading. The headline figure declined off its cycle highs notched in the aftermath of President Zuma’s resignation and will be eyed keenly to get a sense of just how much Ramaphoria is cooling off. (Investec)

Our range for the day : R 12.5500 – R 12.7500