Daily Commentary - 14 September 2017

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

- USD / ZAR 13.1395 - EUR / ZAR 15.6193 - GBP / ZAR 17.3683 -

Economic Events:

14-Sep: SA Current Account data - UK BoE policy decision - US  CPI ;Jobless Claims

15-Sep: US Retail Sales ;Univ. Of Michigan Sentiment

Market Commentary:

On Wednesday, the US dollar continued to rake in gains for a third straight day leading up to US inflation data due to be released today.  Investors are hoping that the fresh inflation data will provide some clues regarding the US Federal Reserve`s next interest rate move.  “I cannot see today’s data giving convincing reasons for the Fed to raise rates in December.  So I would assume the dollar is likely to give back some of this week’s gains,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in Tokyo” (source: Reuters).  Investors are expecting a rise of 1.6% in the US core consumer price index, down from 1.7% in July.  The US dollar also drew strength from subsiding fears over North Korea and Hurricane Irma as risk sentiment improved.  President Donald Trump also created some hope as he reached out to both the Democratic and Republican side of a congress divided by his tax-cut plan.

The recent dollar strength has also contributed to the rand losing value in excess of 1% on Wednesday.  Amongst the other contributors were political noise, leadership struggles and ratings agencies.  A recent court ruling deemed the 2015 ANC provincial elections unlawful, highlighting the uncertainty surrounding future leadership elections.  Any electoral postponements would delay political certainty and outlook stability, which could prove to be costly for the rand, especially through the eyes of the ratings agencies.  Yesterday, Moody`s issued yet another warning that the ongoing erosion of government institutions could soon weigh on our credit rating.  Zuzana Brixiova, vice-president and senior analyst at Moody`s, highlighted the pressure on the SARB`s mandate from the public protector, as well as nationalisation talks by key politicians.  South Africa also suffers from weak business confidence, -retail sales and tax collection shortfalls.  South Africa`s business confidence came in slightly higher for the third quarter, but remained in the negative.  Treasury also reported that tax collections came in at R13 billion lower than what was forecasted.

In the UK, the pound remained  stable around its one-year high levels against the US dollar following inflation data that suggested interest rate hikes by the Bank of England could be expected sooner.  UK inflation exceeded both forecasts and the BoE`s inflation target when it hit 2.9%, according to data released on Tuesday.  The majority contributors were clothing and fuel. Investors will shift their focus to the BoE`s Monetary Policy Committee meeting later today, where the interest rate vote will take place.  Members of the nine-person Monetary Policy Committee have warned that that their tolerance for higher inflation, despite the weakness of the overall economy, is limited.

Our Range for the day:  R12.9500 - R13.2500