Daily Commentary - 12 March 2018

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

- USD / ZAR 11.7900 - EUR / ZAR 14.5414 - GBP / ZAR 16.3546 -

Economic Events:

12 March : No Data of real importance

13 March : SA Manufacturing Production - US CPI Data

14 March : CH Industrial Production - EC Industrial Production - SA BER Business Confidence - US MBA Mortgage Applications ; Retail Sales ; PPI

15 March : SA Mining Production - US Initial Jobless Claims ; Empire Manufacturing

16 March : EC CPI Data - US Housing Starts ;University of Michigan Sentiment

Market Commentary:

On Friday, the rand ended the week off slightly firmer on the back of fresh jobs data from the United States. The slower US wage growth that became evident in the data release could put pressure on the Federal Reserve`s ability to raise interest rates in the coming year, which has contributed to the recent increase in risk-on sentiment. However, from a longer-term perspective, the rand could weaken as much as 4% over the next year as investors start to take profits from the over-bought currency on doubts of how much new President Cyril Ramaphosa can achieve in reforms. A Reuters poll taken March 1-6 published on Wednesday showed the rand ZAR=D3 is expected to trade at 12.25 per dollar in a year, down from around 11.74 presently (source: Reuters). Another looming threat is US President Donald Trump`s tariff proposal. “If full-scale trade wars unfold and commodity prices fall, the rand would struggle to hold onto its impressive gains,” said Piotr Matys, emerging markets strategist at Rabobank (source: Reuters). Over the next few weeks, the public enterprises minister will also announce the intended reforms for state-owned enterprises. On the JSE, the Top40 traded up 0.56% and the AllShare up 0.41%.

In the US market, the strong US jobs reports data dampened expectations of higher inflation and accelerated interest rate hikes. “The strong U.S. job growth data was counterbalanced by slower increases in wages, resulting in money market traders sticking to bets that the Fed would raise interest rates three times this year, with only around a one-in-four chance seen for a fourth rate hike in 2018” (source: Reuters).

In the European market, the euro lost traction against most major currencies after ECB President Mario Draghi expressed concern over low inflation and rising protectionism. In the UK market, the pound “rallied on Friday after a slowdown in U.S. wage growth weakened the dollar and British industrial production data showed the UK’s manufacturing sector continues to expand, albeit slowly” (source: Reuters). Market participants will also be keeping a close eye on this weeks` spring statement, a semi-annual economic update, due to be delivered by British Finance Minister Phillip Hammond.  Analysts said with predictions of a Bank of England interest rate hike for May baked into the price, and ongoing political risks around Brexit negotiations, assessments of the health of the UK economy have taken a backseat for currency investors (source: Reuters).

In other news, VBS Mutual Bank, one of South Africa’s smallest lenders, has been put into administration after it was unable to repay money owed to municipalities, according to the country’s central bank. The management team was relieved of its duties and a curator from the auditing firm SizweNtsalubaGobodo has been put in place following a “severe liquidity crisis,” Lesetja Kganyago, governor of the South Africa Reserve Bank, told reporters on Sunday. (source: Moneyweb)

Our range for the day :   R11.7000 – R12.0000