Daily Commentary - 10 January 2018

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

- USD / ZAR 12.3727 - EUR / ZAR 14.7719 - GBP / ZAR 16.7314 -

Economic Events:

11 Jan : SA Manufacturing Production - US Initial Jobless Claims ; PPI Data

12 Jan : US CPI Data ; Retail Sales

Market Commentary:

The rand has fallen victim to fake news and mass-confusion as it temporarily strengthened in excess of 1% on Tuesday, shortly before correcting. According to an article published by Bloomberg, “shortly before 06:00 New York time, false reports suggested Zuma had unexpectedly resigned. Since Zuma isn’t much loved by investors, the rand shot up on speculation a new government led by the leader of the ruling African National Congress, Cyril Ramaphosa, was on the way in”. However, these rumours were soon to be branded as fake news, as Jacob Zuma was nowhere near ousted. To further confuse the matter, other news reports also reported that “Zuma was lost”. The Zuma in question was not our president, but rather the code name for a military satellite launched by Space Exploration Technologies on behalf of the US government. “The Zuma trigger today gives a glimpse of how the rand will react if Zuma does step down early, although this possibility is increasingly being priced in,” said Christopher Shiells, a senior emerging-market analyst at Informa Global Markets. News surrounding Zuma`s potential recall has been making its way into the market, and is expected to be tabled at this week`s NEC meeting.

In the US market, the dollar index which tracks the greenback against a basket of six major currencies, traded up slightly. Investors are bracing for a soft dollar in 2018, despite signals from the US Federal Reserve that up to four interest rate hikes can be expected for the year. Although higher interest rates would seem to be positive for the dollar as it attracts more yield-seeking investors, the current global trend to increase benchmark rates and easing monetary policy seems to take away from the US. The dollar has been showing lacklustre performance since the start of the new year, with many believing a moderate recovery could be on the cards.

In European markets, the euro has been holding steady after coming down slightly from its four-month high. The common currency rallied into the new year as investors formulated expectations concerning European Central Bank monetary policy movements for the coming year.  “While euro zone data continues to paint a picture of an economy that closed out 2017 with very strong momentum, there continues to be a significant lack of inflation that will ultimately keep the pace of ECB normalization very, very cautious,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington (source: Reuters). In the UK, the pound continued to find support from Brexit talks optimism. The value of the pound has become highly correlated with the outcomes of Brexit talks, attracting everyone`s attention to the remaining Brussels negotiations and the troubled trade talks.

In other news, the pharmaceutical company Aspen has become aware that there is market speculation regarding a possible report into Aspen being undertaken by Viceroy Research, a research group which published an exposé on Steinhoff recently. According to sources Moneyweb has spoken to, Aspen shares similar characteristics to that of Steinhoff, namely ongoing problems and investigations by regulators in various parts of the world, a serial acquirer, large amounts of debt and accounts that are not as transparent and easy to comprehend as some investors would like (source: Moneyweb).

Our range for the day :  R12.2000 - R 12.5000