Daily Commentary - 14 March 2018

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

- USD / ZAR 11.7430 - EUR / ZAR 14.5598 - GBP / ZAR 16.3974 -

Economic Events:

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 Tuesday, the rand gained some ground on the back of political turmoil in the United States. The rand has been holding strong since Cyril Ramaphosa took over leadership of the ruling ANC party, with market participants eagerly awaiting the implementation of his intended political reforms. “Hopes for a political change have been spurring the rand higher since November. However, the air should be getting thinner for further surges of the rand as the new government will have to ‘deliver’ now,” Commerzbank analysts wrote in a note (source: Reuters). On the local front, manufacturing data released yesterday that showed a 2.5% increase in output did little to move the local currency. On the JSE, the Top40 traded up 0.13% and the AllShare up 0.19%.

In the US market, dollar gains were limited as inflation data came out within market expectations, signalling a gradual pace of interest rate hikes for the coming year. “The US consumer price index (CPI) rose 0.2% in February from a 0.5% increase in January. On an annual basis CPI rose 2.2% in February, up from 2.1% in January, which was according to expectations” (source: Reuters). Risk appetite also diminished as President Donald Trump announced the removal of Rex Tillerson, US Secretary of State, who was replaced with CIA Director Mike Pompeo. This in turn has led to increased uncertainty regarding future policies and has raised fears of more protectionist measures in the US. “Investors suspect policymakers who favor protectionism will also seek to use the currency as a trade weapon, if not overtly then through benign neglect (source: Reuters).

In the European market, the euro gained slightly overnight after the European Central Bank adopted a more Hawkish rhetoric.  Markets are expecting the first interest rate hike in March this year, as the ECB begins its slow transition away from easy monetary policy measures. Jan Smets, the ECB governing council member from Belgium told Reuters in an interview that euro zone inflation could take longer to rise than anticipated and that the ECB should not accept below-target price growth. He added that the ECB had not even started a discussion about revising its monetary policy framework or even its so-called forward guidance (source: Moneyweb). In the UK market, the pound has also joined the list of gainers as the British economy grew by 1.5% this year, marginally above the 1.4% forecast.\

Our range for the day : R 11.7000 - R 11.9500