Daily Commentary - 11 October 2017 | Merchant West

Daily Commentary - 11 October 2017

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

- USD / ZAR 13.6609 - EUR / ZAR 16.1435 - GBP / ZAR 18.0138 -

Economic Events:

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 staged a late-session rally on Tuesday away from 6-month lows as investors took profits on the dollar's recent rally and positioned for a run lower by the rand, while bonds were firmer and stocks traded sideways. By 18h00 the rand was 1.12 percent firmer at 13.6450, further away from the six-month trough of 13.8025 reached on Friday as pressure from potentially fast-rising lending rates in United States put pressure on emerging markets.

"The rand is tracking other emerging currencies. There haven't been much flows from offshore but this is a normal market retracement as the market seems to have been caught a touch long," said Standard Bank currency trader Oliver Alwar. A firmer gold price also aided the rand's bounce from its worst levels since April, but Alwar said the rally would be short-lived and the currency would likely approach the 13.9500 technical support mark this week. Stocks were barely changed as shares which earn most of their revenue abroad weakened as the currency strengthened, holding back further gains on the bourse.

"The market is coming off the highs where we benefited from a weaker rand so with the rand strengthening then it becomes a bit negative for those rand hedges," said BP Bernstein portfolio manager Makwe Masilela. The market was also held back by technical factors, with momentum indicators tracked by some analysts suggesting the main indices had strayed into overbought territory at current highs. This could constrain further gains in the short-term.

Domestic Data Front:

South Africa's manufacturing output rose by a surprise 1.5 percent year-on-year in August after contracting by 1.1 percent in July, Statistics South Africa said on Tuesday. Economists polled by Reuters had forecast manufacturing volumes would contract by 0.05 percent year-on-year in August. Factory production on a month-on-month basis grew by 0.3 percent, and was up 1.3 percent in the three months to August compared with the previous three months.

International Front:

The euro hit a one-week peak on Tuesday as Germany rang up its best month for exports in a year in August and expectations grew that the European Central Bank may consider scaling back its asset purchases. The currency's rise this year had lost some momentum in recent days as political concerns, notably Spain's Catalan secessionist movement, have intensified. The euro has fallen more than 3 percent against the dollar over the last month but underlying economic data has shown resilience. "The focus is shifting away from the political news to the economic data and that is turning to be euro positive, and we should see the currency supported before the ECB meeting," said Viraj Patel, an FX strategist at ING Bank in London. German exports rose 3.1 percent in August, their strongest month in a year, putting Europe's economic engine on track for a solid 2017.

The euro gained 0.5 percent to 1.1807 against the greenback, its strongest since Oct. 2, after overnight comments from Sabine Lautenschlaeger, an ECB executive board member, calling for the ECB to roll back asset purchases in 2018. The ECB is expected to decide on Oct. 26 whether to continue bond purchases next year. Signals from policymakers suggest they will opt for lower volumes but also an extension of the scheme, possibly by six or nine months. The euro's gains were capped as traders awaited a speech at 18h00 from Catalonia's secessionist leader Carles Puigdemont to possibly declare the region's independence from Spain despite Madrid's warnings of counter-measures.

The euro's strength came at the expense of the dollar, which has receded from a 10-week high on tensions between the United States and North Korea over the latter's nuclear weapons program. A spat between U.S. President Donald Trump and an influential Republican senator raised speculation that the tax overhaul plan Trump introduced would stall, weighing down the greenback. "Some of the political wrangling over the weekend was seen as detrimental to tax reform," said Bill Northey, chief investment officer at U.S. Bank Wealth Management in Helena, Montana.

Our Range for the day: R13.5200 - R13.7500