Daily Commentary - 11 September 2017

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

- USD / ZAR 12.9007 - EUR / ZAR 15.5052 - GBP / ZAR 17.0176 -

Economic Events:

11-Sep: No data of real importance

12-Sep: No data of real importance

13-Sep: SA Business Confidence Index - EC Industrial Production

14-Sep: SA Current Account data - UK BoE policy decision - US  CPI ;Jobless Claims

15-Sep: US Retail Sales

Market Commentary:

The news last week that South Africa has exited the short-lived technical recession helped the rand to sustain levels below R13 against the US dollar. According to Statistician General, Pali Lehohla, second quarter GDP was sitting firmly 2.5% following the 0.3 contraction in the last quarter of 2016 and 0.7% in the first quarter of 2017. Agriculture was said to be “shooting through the roof” as it increased by 33.6% from its former low base. He also added that the increased agricultural activity did not do much for unemployment as increased mechanisation became evident. Amongst the sectors that came in with positive growth, manufacturing was up 1.5%, mining 3.9% and electricity production 8.8%. On Friday, the rand started tracing back its gains against the greenback as political fears crept back into sentiments and investors took profits from the currency`s near three-month best. At market close, the rand was trading at R12.93 against the US dollar, almost 10 cents lower than at the same time on Thursday. The rand has gained about 5percent in the past 30 days as political tensions between the US and North Korea simmered, benefiting from its role as a major exporter of safe haven gold.

On the International front, the US dollar was seen weakening to almost its lowest levels in the last three years. Dollar weakness was also partially driven by a congressional agreement to move up the timeline for US debt ceiling talks to coincide with the Federal Reserve`s policy meeting in December.  Relief over the lack of further provocative action by North Korea has led to short-covering in the dollar, said a trader for a Japanese bank in Singapore. “I think this shows that the market had been a bit panicky on Friday, on fears over weekend risks,” the trader said (source: Reuters). The dollar index, which tracks the US dollar against a basket of six major currencies, was trading 0.2% higher on Thursday.

The euro continued to surprise following the suggestion by ECB president Mario Draghi that stimulus tapering would commence in the near-term. On Friday, the euro fell slightly by 0.2% after it reached EUR/USD 1.2092, the highest since January 2015. Despite the strength of the common currency and prospects for further gains on expectations of a turn in monetary policy, the European Central Bank has signalled it is gearing up to taper its massive stimulus programme. Reuters reported on Friday that ECB policymakers agreed at their meeting on Thursday that their next step would be to begin reducing its bond buying, three sources with direct knowledge of the discussion said.

In the UK, manufacturing data outperformed investor expectations which saw the pound gaining for the third consecutive week and rising to a five-week high against the US dollar. Data showed UK manufacturing rose in July for the first time this year, while the construction sector shrank for a fourth consecutive month. “The market has been caught short by a bout of reasonable UK data as well as the realization that Brexit is a lengthy process whose immediate impact on the pound is difficult to predict as yet,” said Valentin Marinov, head of G-10 foreign-exchange strategy at Credit Agricole SA’s corporate- and investment-banking unit in London. “In all, sterling still looks very cheap against the dollar and moderately cheap against the euro.” Sterling’s gains against the dollar are coming amid speculation over the Federal Reserve’s plans and tensions with North Korea that are weakening the US currency. Over the past month, the pound has been outperformed by almost all of its G-10 peers. The pound faces “significant stumbling blocks” against the euro over the next few weeks as Parliament returns from recess, according to strategists from BNY Mellon. Potential flashpoints include the September round of EU negotiations and comments from the Conservative party conference, they said in a research note (source: Bloomberg).

Our range for the day R :12.98 – R 12.83