Daily Commentary - 11 April 2018

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

- USD / ZAR 12.0432 - EUR / ZAR 14.8951 - GBP / ZAR 17.1157 -

Economic Events:

11 April :US CPI ; FOMC Meeting Minutes - SA BER Consumer Confidence

12 April : EC Industrial Production - SA Mining Production - US Initial Jobless Claims

13 April : GE CPI EU Harmonised - US University of Michigan Sentiment

Market Commentary:

South Africa's rand traded weaker early this morning after disappointing manufacturing figures and comments from the central bank underscored the fragility of the recent economic rebound.

At 09h00 the rand was 0.35 percent weaker at 12.0750 per dollar compared to an overnight close of 12.0375 in New York, giving up a brief push firmer towards the 12.00 technical pivot seen as a short-term target for rand bulls.

Data on Tuesday showed manufacturing down on a month on month basis in February following a similarly poor print in the previous month, reawakening fears that the country's economic growth outlook remain uncertain despite the uptick in sentiment. Later on Tuesday the Reserve Bank warned that 2017's boom could fade if details on policy reforms were not forthcoming. With no data releases locally traders said the rand would take direction from industrial and manufacturing data from the United Kingdom as well as comments by European Central Bank chief Mario Draghi and the release of minutes of the Federal Reserve's last policy meeting.

Local Data Front:

South Africa's manufacturing output came in below expectations in February following a run of five months of robust growth, with analysts pointing to a stronger rand and various bottlenecks, including the cost of doing business. Manufacturing output rose 0.6 percent year-on-year in February, well below expectations of a 2.6 percent expansion, while monthly output was down 2.4 percent, the statistics agency said on Tuesday.

"It has been a patchy recovery for the industry especially if look at the world recovery that began already in 2017. It's taken our sector too long to respond to that momentum," said senior economist at Nedbank Nicky Weimar. “The cost of doing business remains high, and the rand's recent strength has affected exports, while there is also a lot of spare capacity. All of that is holding back this recovery," she said.

Comments : The World Bank raised its forecasts for the South African economy on Tuesday but warned that growth potential would remain weak without concerted efforts to reduce inequality and stimulate competition.The World Bank now sees gross domestic product growing by 1.4 percent this year, up from its September forecast of 1.1 percent, supported by improved business and consumer confidence after Cyril Ramaphosa replaced Jacob Zuma as head of state in February.

But South Africa will struggle to raise growth much beyond 2 percent without policy interventions to improve skills among the poor and tackle monopolies, it said."There has been a smooth and seamless political transition, which is important. And there have been gains in the trust of people and businesses," said Paul Noumba Um, World Bank country director for South Africa."That said, inequality, poverty and unemployment are big challenges. South Africa is the most unequal economy in the world today," he told a news conference in Johannesburg.

International Data Front:

U.S. producer prices increased more than expected in March, boosted by a rise in the cost of services such as healthcare and airline fees, pointing to a steady buildup of wholesale inflation pressures. The Labor Department said on Tuesday its producer price index for final demand rose 0.3 percent last month after increasing 0.2 percent in February. That lifted the year-on-year increase in the PPI to 3.0 percent from 2.8 percent in February.

International Front:

Xi promised on Tuesday to open the country's economy further and lower import tariffs on products like cars, in a speech seen as an attempt to defuse an escalating trade dispute with the United States. Global equities rallied and oil prices surged more than 3 percent on Tuesday as Xi's comments allayed fears about the risk of a trade war between the world's two largest economies that could harm global growth. The improvement in risk sentiment gave a boost to commodities-linked currencies and emerging market currencies and weighed on the U.S. dollar as well as the Japanese yen.The euro held steady at 1.2360 against the greenback, hovering near Tuesday's high of $1.2378, its strongest level since March 28.

Our range for the day : R 11:9800 – R12:1500