Daily Commentary - 10 October 2017

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

- USD / ZAR 13.7473 - EUR / ZAR 16.1870 - GBP / ZAR 18.0957 -

Economic Events:

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:

South Africa's rand slumped to a new six-month low on Monday as emerging market currencies suffered a broad sell-off linked to rising U.S. Treasury yields. By 18h22, the rand was 0.67 percent weaker than Friday's close at 13.8025 versus the dollar, after earlier falling as far as 13.8650 versus the greenback. The rand last traded at these levels on April 11. Analysts said the local currency was mostly feeling the heat from market moves in the United States, where Treasury yields were at their highest level in several months. Higher yields for safe-haven U.S. Treasuries dent the appeal of emerging market assets like South African bonds, which are seen as riskier investments.

The Rand however did recover somewhat in overnight trade and is now trading around the 13.7600 levels.

Political risks also weighed on sentiment as South Africa's ruling African National Congress party prepares to pick a new leader at a conference in December. The benchmark Top-40 index closed up 0.6 percent at 51,323 points, while the broader all-share index rose 0.5 percent to 57,530 points, reaching a new high of 57,750 in intra-day trading. South African stocks have been lifted in recent months by the offshore earnings of a few companies, as well as by global flows into emerging market equities. On Monday, shares in Sasol rose after the petrochemical company said it had scrapped plans to issue around 43 million new shares to refinance a black economic empowerment transaction. The planned book build was seen as dilutive and led to a sell-off when announced last month, but Sasol shares on Monday recovered some of the earlier losses, advancing 2.9 percent to 396.26 rand.

On the International front:

The dollar was little changed against the yen this morning, with the market wary of potential North Korean provocations, while the euro extended gains following upbeat German data and hawkish-sounding comments from a European Central Bank official. The greenback was steady at 112.670 against the JPY. It had popped up to a near three-month high of 113.440 on Friday on robust U.S. wages data before pulling back on North Korea concerns The dollar was hit late last week by a report that North Korea was preparing a long-range missile test. There were concerns that Pyongyang could mark the days leading to Tuesday, when it celebrates the founding of its ruling party, with some sort of provocation.

"The market will be keeping a side glance on North Korea, but much of the latest tension could have been priced in on Friday when the dollar slipped," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities. "Still, the dollar is well supported and not an easy currency to sell at the moment after Friday's data showed that U.S. wages are improving steadily." The index was last at 93.557, down 0.1 percent on the day but still in reach of a 10-week high of 94.267 scaled on Friday when surprisingly stronger U.S. September wages data enhanced already high expectations that the Fed would hike rates for a third time in 2017.

The euro advanced following data showing German industrial output notched its biggest monthly increase in more than six years in August. A call from Sabine Lautenschlaeger, a member of the European Central Bank executive board, for the ECB to roll back asset purchases in 2018 also lifted the common currency. The euro was up 0.25 percent at 1.1768 against the EUR. It had fallen to 1.1669 on Friday, its lowest since Aug. 17.

The Turkish lira pulled back from nine-month lows probed the previous day after the United States and Turkey mutually scaled back visa services amid the latest sign of deteriorating relations between Ankara and its NATO allies. The lira stood at 3.6990 against the dollar after tumbling to 3.9223 the previous day, its weakest since January. During Monday's fall the lira had approached a record low of 3.9417 struck at the start of the year on inflation woes and concerns over domestic politics. "The visa issue between Turkey and the United States probably won't generate further selling of the lira for the time being. Scaling back of visa services will only have limited economic impact and it is unlikely to become a permanent measure," said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities. "In the longer term though, Turkey will need to improve its political situation and enable the lira to strengthen from current levels. Otherwise it will be faced with a jump in inflation next year."

Our range for the day : R13.6000 - R13.8500