Daily Commentary - 11 December 2017

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

- USD / ZAR 13.6951 - EUR / ZAR 16.2408 - GBP / ZAR 18.4018 -

Economic Events:

11 Dec : No data of real importance

12 Dec : US PPI

13 Dec : SA CPI - US CPI ; FOMC Rate Decision

14 Dec : SA Current Account ; PPI - EC  Markit Eurozone Manufacturing PMI  ; ECB MPC Meeting- US Initial Jobless Claims - GB BOE MPC Meeting

15 Dec : US Industrial Production

16 Dec : ANC National Conference starts

Market Commentary:

On the domestic front:

South Africa's Rand strengthened on Friday after a court ruled that President Jacob Zuma's appointment of a state prosecutor to decide whether to reinstate corruption charges against him was not valid. At 15h46 GMT, the Rand was up 0.66% to 13.6400 against the dollar and was on course for gains of around 0.75% against the dollar this week. Although s portion of this recover must also be contributed to the softer than expected hourly wage earning number out of the U.S. Friday afternoon.  (More on that below under the Non-Farm data).  

Last week, shares in household goods retailer Steinhoff plummeted 40% to just under 6 rand as more investors dumped the stock after it disclosed an investigation into accounting irregularities earlier this week. Shares have lost 90% of their value as the company's chief executive quit and it postponed the publication of its annual results. (Reuters)

This week, market attention will switch to local data. South African Revenue Service’s (SARS’s) 2017 Tax Statistics Bulletin coming out on Tuesday, while on Thursday, the Reserve Bank will release its quarterly bulletin for the third quarter. The bulletin will give a breakdown of the sources of SARS’s tax revenue, as well as areas in which collection may have declined or improved while the Reserve Bank’s bulletin will give an indication of how the current account performed. Both are crucial sets of data that are instructive of how fiscal and monetary policy intersect. (Business Day)

The ANC's leadership conference kicks off this weekend, when party members will likely choose between Deputy President Cyril Ramaphosa and former cabinet minister Nkosazana Dlamini-Zuma. Markets have tended to see Ramaphosa as more business-friendly, and signs he has been doing well in nominations for ANC leader have supported South African assets in recent weeks. (Reuters)


On the International front:

Friday’s Non-Farm payroll came out above expectation at 228 000 (vs expectation of 190 000), however hourly earnings increased only 0.2% (vs expectation of 0.3%). This will probably put little pressure on the Fed rate outlook for 2018, and December FOMC event risk now minimal with a 25bpt hike fully priced in. "There is a consensus that the Fed will hike this week, so what investors are most interested in is any clue as to what it will do next year, and the pace of interest rate increases," said Yutaka Miura, a senior technical analyst at Mizuho Securities in Tokyo.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 93.87 late Friday, off an earlier high of 94.08. The dollar pared back gains against the yen following the payroll data, but was still up for the day, with USD/JPY at 113.47 in late trade. The euro trimmed losses against the dollar, with EUR/USD last at 1.1774 - flat on the day. The pound ended the day lower against both the dollar and the euro after rising against both currencies earlier in the day amid relief over progress in Brexit talks. GBP/USD was down 0.6% at 1.3392 late Friday after rising as high as 1.3356 earlier.

The Fed, ECB and BoE are all set to meet this week to announce and discuss monetary policy. Fed is likely to raise rates, while the expectation is for BoE and ECB to both hold. Fed meeting is on Wednesday, while both ECB and BoE will meet on Thursday. The US Tax Bill is also drawing some attention. All eyes will be on Senate Republicans to see if they can push through the proposed Bill as legislation ahead of the self-imposed 22 December deadline.

Our Range for the Day  :-   13.60    -   13.75