Daily Commentary - 12 February 2018 | Merchant West

Daily Commentary - 12 February 2018

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

- USD / ZAR 11.9625 - EUR / ZAR 14.6768 - GBP / ZAR 16.5555 -

Economic Events:

12 Feb : No Data of real importance

13 Feb  : SA Unemployment - UK CPI Data

14 Feb :EU GDP Data - SA Retail Sales - US Retail Sales ; CPI data

15 Feb : US Initial Jobless ;Industrial Production ; PPI data

16 Feb : US Export /Import Prices ;Consumer Sentiment

Market Commentary:

The ZAR firmed on Friday, recouping losses from the previous trading session as investors continue to bet on Zuma’s imminent unseating in the next few days.  The Rand led gains amongst all emerging peers on Friday. Confirming Speaker Mbete’s indications that the ANC officially called a fresh NEC meeting for today with there still being no soft Zexit taking place. Zuma continues to defy informal requests to step down when meeting with the top 6 over the weekend. Speaking yesterday, Ramaphosa as the effective president-in-waiting said that “our people want this matter finalised. The NEC will be doing precisely that. We know you want closure on the matter”.  The Sunday times however bucked Ramaphosa’s prior assurances that an immunity deal was off the table, reporting that Zuma is being offered a deal to avoid prosecution if he admits to criminal wrongdoing and testifies against the Guptas. A hard Zexit scenario would be if Zuma goes on to ignore an NEC decision to recall him and dare the party to have him ousted from office in a no confidence vote in parliament. An additional tail risk would be for Zuma to reshuffle his cabinet and fire Ramaphosa as deputy to try to establish a different chain of succession for interim president, setting up some fresh political event risk.  ZAR resilience and the constructive political undertone have remained bulwarks for local bonds but note that we are seeing some sharp curve steepening pressure emanating from US Treasury yields as a potential headwind. Last week the ZAR was one of two EM currencies to remain in the green against the Dollar’s surge last week courtesy of Fridays near 1.5% rally below the 12.0 big figure.  The SA 10 year benchmark bond rose 2 bps to 8.455% on Friday.

The Dollar was on the back foot on Friday across the majors on concerns about Trumps budget proposal. The Euro advanced on the day and has since opened trading today 1.2280, about 0.25% stronger against the Greenback. Trump is currently tackling a plan to overhaul US infrastructure worth $200 billion which is due to be released today and will include a mix of grants and loans. This plan will fulfil the Trump administrations signature promise to overhaul US Infrastructure over the next 10 years which will be paid for through cuts elsewhere in the budget. The single largest part of the plan will be $100 billion that will be made available to states and municipalities in the form of matching funds for infrastructure projects.

Range 11.80 -12.10