Daily Commentary - 09 November 2017

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

- USD / ZAR 14.1685 - EUR / ZAR 16.4476 - GBP / ZAR 18.6282-

Economic Events:

09-Nov : SA Mining and Manuf. Production  - US Initial Jobless Claims

10-Nov : US Consumer Sentiment

Market Commentary:

Today we will await the release of September mining and manufacturing data. In both sectors, output growth was surprisingly strong in the first two months of Q3. Coupled with today’s figures we are expecting strong quarterly growth figures of 6.3% and 2.3% for manufacturing and mining sectors respectively. As part of the IMF’s regular surveillance of SA economic developments it was noted that despite a more favourable global backdrop, growing political uncertainty and little progress on reforms clouds SA’s economic outlook. The fund also concluded that the revised 0.7% growth figure for SA in 2017 was unlikely to improve into 2018 and that the recovery over the medium term could be sluggish unless structural reforms to lift business and consumer confidence are accelerated. On top of this the IMF pleaded the Presidential Fiscal Commission to avoid further “undue increases in the debt-to-GDP ratio”.

The Rand traded in a tight 14.10-14.25 range yesterday. The pairing opens today at 14.16 and seems to have no bias one way or the other and with limited data and events today we can expect boring horizontal trade. It seems like the market edginess has subsided somewhat with Dollar volatility earlier in the week also dissipating. Bonds traded higher on Wednesday, with price action being very choppy. The yield on the benchmark R186 traded up to as high as 9.27. Just like our currency, it’s very hard to discern any direction in the fixed income market however, there is still being quite a healthy appetite to buy R186’s around the 9.30 level. The lack of volatility in debt markets could give the Rand a push to trade slightly stronger.

The only development that could potentially shift the pairing out of its tight range is the continued US tax reform saga given that Senate Republicans are set to release their proposed bill today. News on the tax reform bill has managed to move markets last week and even slightly this week but it’s most likely that the continual back and forth between politicians will receive less and less attention from market participants. The chance of getting anything down before Congress goes into recess on the 23rd of November is also fading with only a 23% probability being put on corporate tax rates being cut this year. US treasury yields were up 1.5 bpts across the curve after the previous session’s weakness.

Range 14.1000-14.2500