Daily Commentary - 12 September 2018

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

USD / ZAR 15.0291EUR / ZAR 17.3994GBP / ZAR 19.5745

Economic Events:

12 September: SA Standard Bank SA PMI - EC Retail Sales - US Trade Balance

13 September:UK Bank of England Rate decision -EC Main Re-Financing Rate - US CPI Data

14 September:EC Trade Balance - UK BOE Carney Speaks in Dublin - US Retail Sales

Market Commentary:

USD/ZAR traded in a tighter range yesterday and tested 15.00 amid news that Moody’s had upgraded its negative outlook on South African banks to stable and with the ANC emphasising that there will be no land grabs, softening its tone on expropriation of land without compensation being ZAR positive.

Uncertainty around the upcoming MPC meeting (20 September) , the Mid Term Budget Speech (MTBSP) and the Moody's ratings report make the near term view difficult to forecast. With tight flows seen yesterday, the benchmark R186 ranging 9.22- 9.17 with possibly a similar range today, USD/ZAR being the driver of any moves.

Despite a very well supported weekly auction that saw total bids rise to nearly R8bn from R6.5bn last week, as well as the rand recovering to near the 15.00 level against the dollar, the R186 failed to take advantage of these positive developments and spent the whole day in the recent short-term 9.22/17 trading range which we saw on Monday as well (Investec).

Focus turns to the USDTRY, with speculation that the Turkish Central Bank will be forced to hike rates aggressively tomorrow. ZAR struggled to break through the 15.00 and this is now the level to watch for a break lower.

The data scheduled for today in terms of retail sales and the SACCI Business Confidence Index is typically not market moving data. We may need to wait for Turkeys central bank decision tomorrow to see whether they carry through with a rate hike to help reduce the negative speculation against the TRY and ease some of the pressure on EMs more generally. As a position, we would continue to look for opportunities to sell USDs from these levels, but would keep a tight trailing stop loss on any trade deployed (Investec).

Tomorrow also see’s market moving data, with UK’s BOE interest rate decision, ECB interest rate decision, Turkey’s central bank interest rate decision and US CPI data.

Given the importance of commodities prices to South Africa, we are always mindful of sharp price movements. We’d mentioned yesterday that the Brent crude oil price had the potential to test US$80/bbl this week and it seems our expectation could be met as early as today. Iranian exports appear to be falling faster than anticipated, while US production growth is beginning to slow — raising concerns of tightening global supply. But the catalyst for sharp overnight gains was a weather report which showed that Hurricane Florence is expected to make landfall later this week, threatening a significant gasoline pipeline in the north-east coast of the US. Recent price action does not bode well for the local fuel price, especially if the rand fails to extend recent gains (RMB).

Our range for the day : R14.9000 – R15.3000