Daily Commentary - 14 August 2017

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

- USD / ZAR 13.3593 - EUR / ZAR 15.7586 - GBP / ZAR 17.3446 -

Economic Events:

14-August: EU Industrial Production

15-August: US Retail Sales

16-August: SA Retail Sales - US Housing Starts

17-August: EU CPI Data - US Jobless Claims ; Industrial Production

18-August: No data of real importance

Market Commentary:

The Rand escaped rather surprisingly unscathed after a week of more than its fair share of political turmoil. If we look back to where the Rand opened a week ago, i.e. Monday the 7th Aug. it was pretty much where we start things today (around 13.41/13.42) and again boy-o-boy what a week we had, yet it didn’t truly reflect as such in our currencies’ movements. Monday afternoon saw the speaker of Parliament, Baleta Mbete passing the motion to allow Tuesday’s Vote of No Confidence to be done as a “secret ballot”, and this saw the Rand strengthening nicely, and at one point saw prices dip for a brief moment to around 13.11; midday Tuesday.

The Vote which finally took place late on Tuesday evening went sadly very much the wrong way for the opposition parties. Of course Zuma lost a little bit of ground with 25 of the ANC members voting against him, but all-in-all it was a victory for him and logically this did see the Rand stumble, but by no great margin as we only tested 13.53 during the Public Holiday. Maybe it was a good thing that local markets were closed as the global market certainly was too perturbed that Zuma hadn’t been given the boot, but not sure if we ourselves however wouldn’t have panicked a bit more.

Friday brought the fears that Moody’s would be downgrading us, especially after another wave of local “political noise”. However it was a bit more of a storm in a tea cup as Moody’s came out saying that they felt it was unwarranted to release a review of the SA economy so soon after its previous ratings action. Furthermore Moody’s commented that, political noise nevertheless, not much has changed over that time and any change would have made a mockery of their process given that they have been the most conservative of the three major ratings agencies. The most likely timeframe for a ratings downgrade will either be post the MTBPS, if the update is a particularly poor one, or even more likely will be post the Feb. budget announcement when the ratings agencies will get a good look and feel on how the government plans to plug the revenue shortfall, the result of the weak growth environment. (ETM Analytics).

But Moody’s holding off wasn’t the big saving grace, it helped a little but the real lifeline to the poor waning Rand was when the U.S. CPI figures came out at 14h30 on Friday and were well below the market expectation.  The July CPI report capped off last week, which caused surprises across the board. The headline figure only rose to 1.7% y-o-y from 1.6% vs expectations for 1.8%. Crucially core remained unchanged at 1.7%, and still languishing at 2015 lows. On the whole the Fed is likely to continue framing this as a temporary state of affairs with the key underlying categories to inflation staying afloat. For markets though it continues to affirm the bias to price against less dovish Fed hike guidance.

The Rand recovered nicely as did most EM currencies. We were stuck just a cent or two under 13.50 and shot down quickly to 13.4150 but sadly thereafter didn’t move any stronger and mostly closed the day around 13.4350 in N.Y. a few hours later.

The Euro however got bought far more aggressively off the soft Dollar data and went shooting from the 1.1770 mark to well above the 1.18 level again testing 1.1830 which is more or less where it remained. This naturally didn’t help our EUR/ZAR importer who sadly saw the currency pair climbing to 15.9350.

Our Range for the Day :-   13.30   -    13.45