Daily Commentary - 12 September 2017

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

- USD / ZAR 12.8809 - EUR / ZAR 15.4219 - GBP / ZAR 17.0069 -

Economic Events:

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 ;Univ. Of Michigan Sentiment

Market Commentary:

The rand was seen losing some ground at the end of last week as Hurricane Irma and political tensions encouraged traders to position themselves for yet another rally against the US dollar. On Monday, the rand slowly came back and traded 0.08% firmer at USD/ZAR 12.9300. As the political tensions between North Korea and the US linger in the markets, South Africa`s safe-haven gold exporter status saw to the rand gaining 5% in the last month. Analysts are expecting the rand to continue trading in the current narrow range, as no major shocks are expected from upcoming data. Data will take the backseat for now as markets shift their focus towards the local ANC party`s leadership contest. “All talk now focused on the apparently imminent cabinet reshuffle, as the president lays plans for the future. Possible trading range in the rand today 12.8000 to 13.1000,” said Reezwana Sumad, chief analyst at Nedbank Capital. According to reports that surfaced over the weekend, South Africans can potentially brace for another cabinet reshuffle by the hands of President Jacob Zuma following the announcement that presidential hopeful, Dr Nkosazana Dlamini Zuma will be getting a seat in parliament.  On the JSE, the Top-40 traded 0.65% higher with bonds slightly down.

At the end of last week, the US dollar weakened against other major currencies as political tension, natural disasters and lower Treasury yields battered the United States. The US dollar and Wall Street opened slightly better yesterday as investors started to assess the impact of Hurricane Irma which struck the Florida coast over the past weekend Irma has since been downgraded and investors regained some optimism as the damage caused was less than anticipated. Investors will also be closely watching as the geopolitical tension unfolds between the United States and North Korea, following the United Nations Security Council vote to increase sanctions against North Korea yesterday. North Korea conducted its sixth nuclear test earlier this month. As global confidence picks up, so did the dollar as the dollar-index, which tracks the greenback against a basket of six major currencies, firmed slightly. Looking ahead, analysts will be focused on coming data, including on consumer-price inflation, retail sales, industrial production, consumer sentiment and the Empire State manufacturing survey.

UK inflation out today is expected to increase to 2.8% y-o-y from July 2.6%, while the core rate is also expected to increase to 2.5% y-o-y in August from July’s 2.4% y-o-y, making it well above the 2% point target of the Bank of England. A concern is that unemployment has been sticky and wage growth is generally lagging inflation. This implies a decline in real disposable income. A weaker pound post Brexit is also contributing to accelerating prices. This print will be eyed ahead of the BOE’s meeting this Thursday.

The latest surge in China’s inflation suggests global growth is on the march and should prolong the rebound in commodities. At the same time, loose financial conditions from persistently low interest rates to record equity prices and a weak dollar, have created a feedback loop that’s intensified the hunt for yield. The renminbi suffered its worst day in three months after China’s central bank scrapped two rules intended to bolster the currency in a sign that official nervousness about currency depreciation and capital flight has eased.

Expected range : 12.80 – 13.10