Daily Commentary - 11 January 2018 | Merchant West

Daily Commentary - 11 January 2018

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

- USD / ZAR 12.4655 - EUR / ZAR 14.8808 - GBP / ZAR 16.8109 -

Economic Events:

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

12 Jan : US CPI Data ; Retail Sales

Market Commentary:

On Wednesday, the rand started to lose ground as it emerged that the removal of President Jacob Zuma would not be one of the talking points at the ANC`s national executive committee (NEC) meeting. Although it has not been made completely clear whether Jacob Zuma will retain his seat in the presidency for now, his long overdue appointment of a commission of enquiry to probe allegations of state capture has been seen as a play to hold on to power. The rand has drawn the majority of its recent strength from Cyril Ramphosa`s victory in December on the hope that he would resurrect South Africa`s ailing economy. However, in the absence of any visible progress in the wake of his victory, the rand has become increasingly vulnerable to headline risk. With the NEC meeting currently underway in East London, its outcome is expected to signal the near-term direction of the rand.

In the US markets, the dollar is recovering from its biggest daily drop in the last eight months after China, the biggest holder of US treasuries, announced plans to slow or even halt its purchases following recommendations from officials reviewing China`s foreign exchange holdings (source: Bloomberg). Although it remains highly unlikely that a complete stop will be put to US treasuries purchases, any changes could still weigh heavily on investors` risk appetite. Protectionism has also been posing a problem for the US dollar. “If the US pulls out of NAFTA, the Mexican peso could lose as much as another 10 percent, but the U.S. dollar could also get slammed against major world currencies, according to Jens Nordvig, CEO of Exante Data. The currency strategist said U.S. protectionism is one of the biggest threats to the dollar and one of the biggest sources of dollar volatility”. (source: CNBC)

In the European markets, the euro remains steady without any significant movement for the week. The following is an excerpt from a Bloomberg article: “Options bets on the euro consistently showed during the final quarter of 2017 that the major threat for investors with long exposure in the common currency was the high probability that euro-sceptic parties would fare well in the next Italian elections. This is also the case currently, yet Italy’s Five Star leader Luigi Di Maio doesn’t think the country needs to leave the euro anymore. As with last year’s elections in the Netherlands, France and Germany, the Italian vote may provide not more than a temporary hiccup to the euro”. In the UK, the pound has been weakening slightly following its recent rally.

In other news, South Africa’s business confidence index rose for a second month in a row in December, due in part to political developments that have raised expectations of policy certainty and economic reforms, a chamber of commerce survey showed on Wednesday. “The BCI improved on a more positive business mood and political developments that are expected to put South Africa in a position for more encouraging business and economic policy options,” SACCI said in a statement (source: Reuters).

Our range for the day : R 12.2500 - R12.5500