Daily Commentary - 13 April 2018

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

- USD / ZAR 12.0481 - EUR / ZAR 14.8477 - GBP / ZAR 17.1755 -

Economic Events:

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

Market Commentary:

South Africa's rand weakened against a stronger dollar yesterday  as rising tensions between Russia and the United States over Syria curbed risk appetite, while stocks rose led by banks. At 17h40 the rand was 0.61 percent weaker at 12.0125 per dollar, compared to Wednesday's close of 11.9400.The greenback rebounded after a four-day losing streak after U.S. President Donald Trump backed away yesterday after promising a swift military strike against Syria, saying it "could be very soon or not so soon at all”. “The dollar pulled back initially after President Trump's tweet ... but that seems to have dissipated. The dollar is stronger across the board," said Rand Merchant Bank forex trader Jan Sluis-Cremer.

International Front:

Taking direction from global events, the rand largely ignored data showing mining output rose in February, pointing to continued recovery in the domestic economy, even though economists say the economic rebound will be at a slower pace following poor manufacturing data earlier in the week. In fixed income, the yield for the benchmark government bond  fell 1.5 basis point to 8.08 percent.

The dollar neared a 1-1/2-month high against the yen on Friday, as an improvement in investor risk appetite buoyed equities and pushed U.S. yields significantly higher.The dollar was steady at 107.385 against the yen after gaining more than 0.5 percent overnight. A rise above 107.490  would take it to its highest since late February. The greenback has gained about 0.3 percent versus the yen this week.

Equities were boosted as Wall Street gained yesterday in anticipation of strong corporate earnings, and as geopolitical worries eased on U.S. President Donald Trump's suggestion that a military strike on Syria may not be imminent. The dollar had slipped against the yen, a perceived safe-haven, earlier in the week as U.S.- China trade tensions and the possibility of a U.S.- led missile strike on Syria roiled the broader financial markets..

"The dollar had not shown a strong correlation with U.S. yields recently. But the correlation returned somewhat, with currencies taking notice of such a spike in yields," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. “Risk aversion in equities will need to keep receding for the dollar to remain supported. There is no change to the equation of 'Trump risk' dictating market direction."

The euro was little changed at 1.2328 against the Euro after losing 0.3 percent the previous day, when it ended a four-day winning run.

International data Front:

New applications for U.S. unemployment benefits fell last week, pointing to sustained labor market strength despite a sharp slowdown in job growth in March. While other data on Thursday showed import prices were flat in March amid a sharp drop in the cost of petroleum products, underlying imported inflation pressures are steadily rising. This together with a tightening labor market strengthens expectations inflation will gain steam this year. Economists say a trade war between the United States and China could fan price pressures and push the Federal Reserve on to a more aggressive path of interest rate increases. Washington and Beijing have threatened each other with tens of billions of dollars' worth of tariffs. The Fed raised interest rates last month and forecast at least two more rate hikes this year.

"As long as we don't get into a trade war where tariffs are slapped on all sorts of things, the Fed should be able to maintain its slow tightening process," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “But tit-for-tat tariffs would raise prices and that would create real concerns at the Fed."

Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 233,000 for the week ended April 7, the Labor Department said. Economists polled by Reuters had forecast claims falling to 230,000 in the latest week. Claims tend to be volatile around this time of year because of different timings of the Easter and school spring breaks, which can throw off the model that the government uses to smooth the data for seasonal fluctuations.

Our range for the day : R11.9500 – R 12.1800