Daily Commentary -11 August 2017

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

- USD / ZAR 13.4854 - EUR / ZAR 15.8519 - GBP / ZAR 17.4878 -

Economic Events:

11-August: US CPI Data

Market Commentary:

South African stocks pulled away from record highs on Thursday as rising tensions on the Korean peninsula drove investors to limit risks and shift to safe havens. But the rand firmed, recovering ground following a slide to a one-month low after President Jacob Zuma survived a no-confidence vote. It remained vulnerable to weak economic fundamentals and political uncertainty. “Generally a softer trend, which is following overseas markets. People are being a little bit more cautious really, they are not rushing into buying stocks," Cratos Capital equities trader Greg Davies said. In currency markets, the rand was trading 0.5 percent stronger at 13.3775 per dollar as of 17h52 compared with a close of 13.4525 overnight in New York. Traders said weaknesses in recent weeks had pushed the rand into an oversold territory. "But it is still vulnerable, the backdrop is still negative and it is unlikely that this a turning point," said ETM's economist Halen Bothma. South Africa's annual factory output dropped 2.3 percent in June while mining production slipped 0.8 percent, official data showed yesterday.

Yesterday  the greenback had shed 0.8 percent versus the yen, with the Japanese currency rallying broadly against most major currencies. Both the Swiss franc and the yen have climbed against the dollar this week, after U.S. President Donald Trump warned North Korea that it would face "fire and fury" if it threatened the United States. Trump ratcheted up his rhetoric against North Korea and its leader yesterday, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory. The Swiss franc and Japanese yen are often sought in times of geopolitical tension or global financial stress, partly because both countries have big current account surpluses. The euro eased 0.1 percent to 1.1766 against the greenback, staying below a high of around 1.1910 set last week, the euro's strongest level in 2-1/2 years.

On the International data front:

The number of Americans filing for unemployment benefits unexpectedly rose last week, but the underlying trend remained consistent with a tightening labour market. Initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 244,000 for the week ended Aug. 5, the Labour Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported. Economists polled by Reuters had forecast claims would be unchanged at 240,000 in the latest week. With the labour market near full employment, there is probably limited room for claims to continue declining. A Labour Department official said there were no special factors influencing the claims data and that no states had been estimated. The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, fell 1,000 to 241,000 last week, the lowest level since May.

On the International front:

Talks between African and U.S. officials to review the African Growth and Opportunity Act (AGOA) free trade deal ended on Thursday with no decision and a feeling on all sides that it has achieved little since it was set up. President Donald Trump's top trade negotiator Robert E. Lighthizer and other U.S. officials have been in the tiny West African nation of Togo over the past two days to discuss the Clinton-era trade pact with sub-Saharan Africa. Trump's "America First" campaign has seen him withdraw from the Trans Pacific Partnership, threaten to tear up NAFTA and seek to renegotiate the U.S.-South Korea free trade deal. But his administration has said little about Africa, and had not previously mentioned the 2000 AGOA trade agreement. It is not clear whether the U.S. wants to change the deal before it expires in 2025 or extend it further - no decision was made on either count. AGOA allows tariff-free access for thousands of goods from 38 African nations to U.S. markets

Our range for the day R13.32 – R 13.55