Daily Commentary - 12 April 2018

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

- USD / ZAR 11.9892 - EUR / ZAR 14.8189 - GBP / ZAR 17.0017 -

Economic Events:

12 April : EC Industrial Production - SA Mining Production - US Initial Jobless Claims

13 April : GE CPI EU Harmonised - US University of Michigan Sentiment

Market Commentary:

South Africa's rand firmed in late trade yesterday  as the dollar slipped on fears of possible Western military action against Syria and tensions between Russia and the United States soared, subduing risk appetite. The concerns weighed on stocks, with the benchmark index snapping two straight sessions of gains.

At 17h12, the rand traded at 11.9900 against the dollar, 0.39 percent firmer than Tuesday's close of 12.0375. The rand had weakened to 12.1250/dollar earlier in the session in line with a broader emerging markets sell-off. But the mood subsequently turned more bearish after U.S. President Donald Trump warned Russia of imminent military action in Syria over a suspected poison gas attack, lambasting Moscow for standing by Syrian President Bashar al-Assad.

The fragility of South Africa's recent domestic economic rebound was also in focus after data on Tuesday showed manufacturing had fallen on a month-on-month basis in February. In addition, the Reserve Bank warned last year's boom in growth could fade if details on policy reforms were not forthcoming. On the bourse, the JSE Top-40 index fell 1 percent to 49,472 points and the broader All-share index lost by the same margin to 56,170 points.

International Front:

The dollar edged up against the yen on Thursday, but its gains were tepid as concerns over possible Western military action against Syria lent support to the safe-haven Japanese currency. The geopolitical tensions shifted some focus away from the U.S.-China trade standoff, with the dollar inching up 0.1 percent to 106.91 yen after losing 0.4 percent on Wednesday. The yen often draws demand in times of market turmoil and political tensions.

The dollar had risen to 107.400 yen on Tuesday after comments from Chinese President Xi Jinping calmed fears over a U.S.-China trade war, which had gripped global financial markets over the past few weeks. The dollar has since lost momentum against the yen, however, as focus has shifted to the possibility of wider military conflict in the Middle East. The euro eased 0.1 percent to 1.2361 against the greenback, stabilising after its gains over the past several sessions. The euro has risen 0.7 percent so far this week, as comments from European Central Bank officials reinforced views that the central bank is on track to normalise monetary policy.

With attention on Syria, the U.S. dollar did not garner much support from the Federal Reserve's meeting minutes released on Wednesday showing all policymakers felt the U.S. economy would gain more momentum and inflation would accelerate in the coming months. The dollar index against a basket of six major currencies held steady at 89.536, after having dipped on Wednesday to a two-week trough of 89.355.

International data Front:

U.S. consumer prices fell for the first time in 10 months in March, weighed down by a decline in the cost of gasoline, but underlying inflation continued to firm amid rising prices for healthcare and rental accommodation. The drop in the headline monthly inflation reading reported by the Labor Department on Wednesday is likely temporary as producer prices increased solidly in March.

In addition, the tightening labor market is expected to start generating significant wage inflation in the second half of the year. As such, many economists believe the Federal Reserve will raise interest rates three more times this year. The U.S. central bank increased borrowing costs last month and forecast at least two additional rate hikes in 2018. "U.S. inflation is warming up rather than heating up," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

The so-called core CPI rose 2.1 percent year-on-year in March, the largest advance since February 2017, after increasing 1.8 percent in February. The annual core CPI also accelerated as the drag from last year's plunge in prices for cellphone service plans dropped out of the calculation. The core CPI is now well above the 1.8 percent annual average increase over the past 10 years. Economists polled by Reuters had forecast the CPI unchanged in March and the core CPI rising 0.2 percent from the prior month.

Our range for the day : R 11:9000 – R 12:1500