Daily Commentary - 13 March 2018

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

- USD / ZAR 11.8264 - EUR / ZAR 14.5861 - GBP / ZAR 16.4304 -

Economic Events:

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 Monday, the rand found some stability after earlier strengthening on the back of US jobs data which signalled a more dovish approach to future interest rate hikes. Since the start of the year, the local currency has been buoyed by optimism surrounding the newly introduced political leadership, along with increased risk appetite. “The rand has continued to benefit from favourable sentiment in the overall emerging market sphere, but remains vulnerable to shifts in expectations regarding the pace of US monetary policy tightening,” NKC African Economics said in a note. While the rand benefited from a global recovery in risk assets after last week’s sell-off, triggered by figures showing rising US wages, confidence in the local economy continued to draw buyers (source: EWN). Market participants will also shift their focus towards manufacturing data due to be released at 11:00 today. Markets are expecting a 2.5% YoY increase. The United States inflation figures are also expected today, which could potentially add pressure to the current bullish ZAR outlook. On the JSE, the Top40 traded up 0.18% and the AllShare up 0.04%.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, traded up 0.01% after losing ground overnight. Traders are now holding off in anticipation of the inflation data outcome due to be released later today, which could signal the path that the Federal Reserve needs to follow regarding interest rate hikes for the year ahead. Political concerns have also been weighing on the dollar. “Concerns towards trade conflict stemming from U.S. tariffs continue to linger in the background, capping risk appetite, pushing Treasury yields lower which in turn weighing on the dollar,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo (source: Reuters).

In the European market, the common currency is struggling to return to its February peak as a dovish approach from the European Central Bank continues to limit gains. In the UK market, the pound has raked in slight gains against most major currencies but is still trading well below its post-Brexit referendum high. “Latest positioning data also indicated an undercurrent of nervousness about the British currency, with net long sterling positions slashed to their lowest since early December. Worries have grown that Britain and EU officials would fall short of securing a transition arrangement at a March 22-23 summit as differences have grown in recent days. Such an outcome would question market expectations of a 25 basis point rate increase by the Bank of England in May”. (source: Reuters)

In other news, Rating’s agency Moody’s warned on Monday the water crisis affecting Cape Town would cause the city’s borrowing to rise sharply and the provincial economy to shrink the longer the situation lasted. A severe drought afflicting South Africa’s Western Cape province is expected to cut agricultural output by 20% in 2018, decimating the wheat crop and reducing apple, grape and pear exports to Europe, according to national government. (source: Moneyweb)

Our range for the day : R 11.7000 - R 11.9500