Daily Commentary - 09 October 2017

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

- USD / ZAR 13.7850 - EUR / ZAR 16.1641 - GBP / ZAR 18.0756 -

Economic Events:

09-Oct: No data of real importance

10-Oct: SA Manufacturing Data

11-Oct: No data of real importance

12-Oct : US Initial Jobless Claims ; PPI

13-Oct : US CPI ;Retails Sales ;Univ. of Michigan Sentiment

Market Commentary:

The Rand traded on the back-foot on Friday after the release of US Non-farm payroll numbers. The data supported that there would be a 80% chance that the US Federal Reserve Bank will raise interest rates come December. The Rand opened around the 13.70 level on Friday, after the data it pushed as high as 13.82 and closed around the 13.66 levels. Analysts said market focus was also on local political risks ahead of the ruling African National Congress (ANC) conference in December to pick a new party leader. "Today we have a U.S holiday and as a result markets across the board are unlikely to approach the trading session with much by way of enthusiasm," Nedbank analysts said in a note. "Locally the focus remains firmly on the ANC and the various permutations regarding the succession battle."

South Africa's rand is expected to trade slightly firmer towards the end of the year after weakening last week on the prospect of a December interest rate hike by the United States Federal Reserve, a Reuters poll found. The end of the year will be a very tense time for South Africa as the ruling African National Congress is due to pick a successor to President Jacob Zuma, a process likely to add fuel to already volatile markets.

"It would be greatly surprising if the rand does not come under pressure on the back of the ANC elective conference in December," said Rafiq Raji, chief economist at Macroafricaintel. "Afterwards, rand trading would likely discount the earlier political uncertainty and be less volatile. "Razia Khan, head of Africa research at Standard Chartered in London, said the rand would be supported by the consistent global risk appetite and strong demand for South African bonds - despite the looming threat of further ratings downgrades. So far in 2017, the currency has weathered the storm of downgrades to junk status, largely due to a weaker dollar and a slower pace of policy tightening by major central banks.

On the International front:

The dollar held steady against the yen on Monday, having retreated from 12-week high set last week, due to renewed focus on geopolitical risks amid concerns that North Korea may be preparing another missile test. North Korea is preparing to test a long-range missile, which it believes can reach the west coast of the United States, a Russian lawmaker who had returned from a visit to Pyongyang was quoted by Russia's RIA news agency as saying on Friday. The renewed focus on geopolitical tensions helped lend support to the safe haven yen, and helped pull the dollar down from its post-U.S. jobs data highs.

On Friday, the dollar was already in retreat due to profit-taking, when the North Korea-related headlines reached the market, exacerbating the greenback's drop, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore. "Asia is going to really sit back and just see how this is going to play out, keep on the headline watch," Innes said. "This market's very, very jumpy."

The dollar index, which measures the greenback against a basket of six major currencies, eased 0.1 percent to 93.709 . On Friday, it had scaled a high of 94.267, its strongest in more than two months. The wage data from the U.S. September labour market report was seen as a sign of potentially improving inflation and gave the dollar a lift, as it bolstered expectations for the Federal Reserve to raise interest rates again in December. The Turkish lira tumbled amid fresh signs of fraying diplomatic relations between Turkey and the United States.

International data front:

U.S. employment fell in September for the first time in seven years as Hurricanes Harvey and Irma left displaced workers temporarily unemployed and delayed hiring, the latest indication that the storms undercut economic activity in the third quarter.

  • Total payrolls fell 33,000 vs 90,000 estimate & upwardly revised 169,000 prior (original 156,000)
  • Private payrolls fell 40,000 vs 83,000 estimate & downwardly revised 164,000 prior (original 165,000)
  • Unemployment rate fell to 4.2 pct vs 4.4 pct estimate & 4.4 pct prior
  • Average hourly earnings growth 0.5 pct month-to-month vs 0.3 pct estimate & upwardly revised 0.2 pct prior (original 0.1 pct)

Jason Celente, Senior Portfolio Manager at Insight investments in New York: "Coming into today, there were going to be a bunch of noise from the storms. But looking through the numbers, you have the average hourly earnings higher than expected and the revisions on the average hourly earnings stronger too. It does reflect a tightening labor market.

Russel Price, Senior Economist at Ameriprise Financial Services Inc, Troy, Michigan: "Although the September average hourly wages may be a little bit higher than what is sustainable, it does appear as though wage and salary growth is finally gaining a little bit of traction as the labor supply further contracts. "If wages are starting to increase more prominently, that will give the FOMC the justification that they'll need to hike rates in December.

Our Range for the day:  R13.6500  -  R13.8500