Daily Commentary- 13 November 2017

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

- USD / ZAR 14.4856 - EUR / ZAR 16.8643- GBP / ZAR 18.9628 -

Economic Events:

13-Nov: No data of real importance

14-Nov: UK CPI - EC Industrial Production ; GDP SA  - US PPI Final Demand

15-Nov : SA Retail Sales Constant - US CPI

16-Nov : EC CPI - US Initial Jobless Claims ;Industrial Production

17-Nov : EC ECB's Draghi Speaks in Frankfurt - US Housing Starts

Market Commentary:

The rand extended losses on Friday after rumours that President Jacob Zuma is preparing to introduce free tertiary education. Some are describing this as Zuma’s latest efforts to regain some form of legitimacy with low income households not able to send their children to university. He has tasked a joint team from National Treasury and the Office of the President to find a further R40bn in the budget. The chances of finding this is low in an already cash strapped environment, without some ministry expenses being curtailed. This is causing distress within National Treasury given some recent high profile resignations. Yesterday, however, these rumours were denied by the Presidency.

Adding to the pressures on the rand, the central bank in its Financial Stability report published on Friday, said that State owned enterprises would not be viable entities without government support. Earlier this year Finance Minister Malusi Gigaba , said nine of South Africa’s state-owned entities racked up debt close to R700 billion in the 2015-2016 financial year . The interest paid on this was R51 billion. The five major bank have already shown displeasure with debt ridden SOE’s. This year alone the government has transferred in excess of R5bn to the national carrier to avoid it defaulting on debt owed to Citigroup and Standard Chartered, after the banks refused to extend the terms of the loans.

Rand weakness is expected to continue leading up to the ANC conference in December. The question at the moment is whether or not the conference will go ahead with few branches having had their meetings and many having difficulty in forming a 50% + 1 quorum. ANC Secretary General Mantashe has pressured branches to comply, but there is great uncertainty as to whether they will. Wednesday is when branches are expected to report back and this will obviously affect the performance of the rand from now until then, as what will happen should the deadline be missed is unclear. Annabel Bishop, chief economist at Investec, said the rand is expected to trade in a range of 14.10-14.80 this week.

In US, equities came under pressure after the US Senate Republicans unveiled a new tax plan that differed from the House of Representatives’ version. The head of the House of Representatives' tax-writing committee opposed a proposal that would hike taxes for some middle class Americans. The dollar also came under pressure from the uncertainty over the fate of the tax cut plans.

Eurozone economy is heading toward a golden period as the European Commission lifted its 2017 GDP forecast to 2.2%. The 19 nation block is already enjoying the strongest growth in a decade.

In the UK, rising demand and low unemployment continues to boost its economy as growth is on the up. It hit a nine month high in October, according to Lloyd’s purchasing manger’s index, a survey of manufacturing and services businesses.

Expected range : 14.15  - 14.50