Daily Commentary - 13 December 2017

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

- USD / ZAR 13.6410 - EUR / ZAR 16.0279 - GBP / ZAR 18.2087 -

Economic Events:

13 Dec : SA CPI - US CPI ; FOMC Rate Decision

14 Dec : SA Current Account ; PPI - EC  Markit Eurozone Manufacturing PMI  ; ECB MPC Meeting- US Initial Jobless Claims - GB BOE MPC Meeting

15 Dec : US Industrial Production

16 Dec : ANC National Conference starts

Market Commentary:

On the Domestic Front:

South Africa's Rand weakened yesterday an upcoming conference of the ruling ANC party to pick a new leader and bets of higher interest rates in the United States kept investors cautious. At 16h00 GMT, the Rand traded at 13.6900 per dollar, 0.7% weaker than its close on Monday.

Traders said the currency was expected to trade in ranges ahead of the ANC conference which kicks off on Saturday. The two front-runners to succeed Zuma are Deputy President Cyril Ramaphosa and former chair of the African Union Nkosazana Dlamini-Zuma. Trade might be boring now but it is expected to be explosive over the weekend," Rand Merchant Bank analyst John Cairns wrote in a note. "One-week implied volatility on USD/ZAR has jumped to over 30%, implying the market now puts over a 50% probability of a 5% move in the rand over the week, that is to under 13.00 or over 14.30." (Reuters).

Statistics SA is scheduled to release November’s consumer price index (CPI) data at 10am. Inflation, as measured by the annual change in CPI, is expected to have slowed from October’s 4.8%. Investec Bank economist Kamilla Kaplan said she expected inflation to slow to about 4.7%, "mainly on account of a continued moderation in food prices and a lower fuel price increase relative to the prior month". Kaplan expected the average inflation for 2017 to be 5.3%, down from 6.3% in 2016. "However, for 2018 and 2019 we forecast CPI inflation to rise to 5.7% and 5.8% respectively on a strengthening global cycle, a further lift in commodity prices and higher local administered tariffs."

Stats SA is scheduled to release October’s retail trade sales at 1pm and motor trade sales at 2.30pm. (Business Day)

On the International Front:

The dollar has slipped a little from its’ four-week high against a basket of currencies this morning after a Democrat won a bitter fight for a U.S. Senate seat in deeply conservative Alabama, reducing Republicans' already narrow Senate majority further. The reduced Senate majority could make it harder for President Donald Trump to push through tax cut plans and other economic agenda.

Earlier the dollar was lifted by stronger-than-expected U.S. producer price data published on yesterday and ahead of almost unanimously expected to rate hike by the Federal Reserve at the end of its two-day policy setting meeting later tonight. Investors are focusing more on the Fed's projection on the pace of its rate hikes next year and policymakers' view on the outlook for inflation. The Fed will announce its decision on rates at 19h00 GMT followed by a statement. Chair Janet Yellen will hold a news conference at 21h30 SA time. While Fed policy makers' projection in September suggested they expected three rate hikes in 2018, markets are pricing in only two, with many investors expecting tame inflation will lead to a slower tightening path.

Against the yen, the dollar yesterday slipped 0.2% to 113.35, after having risen to a four-week high of 113.75 yen. The euro gained 0.15% to 1.1757 against the greenback, after having slipped to a three week low of $1.1717 the previous day. Sterling got only a temporary boost late yesterday from data showing British inflation unexpectedly nearly hit a six-year high in November, with investors betting it would have little effect on how soon the Bank of England would raise interest rates again. Consumer price inflation hit an annual rate of 3.1% in November, the data showed, above economists' average expectations in a Reuters poll for another 3.0% rise. The China's yuan has firmed slightly against the dollar this morning as domestic market participants trimmed greenback positions, prior to market opening the People's Bank of China set the midpoint rate CNY at 6.6251 per dollar, 89 pips or 0.13% weaker than the previous fix 6.6162.

Our Range for the Day :-    13.57   -  13.72