Daily Commentary - 15 August 2018

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

USD / ZAR 14.2361 - EUR / ZAR 16.1375 - GBP / ZAR 18.1116 -

Economic Events:

15 August: SA Retail Sales - US Industrial Production ;TIC Flows

16 August: US Initial Jobless Claims ;Housing Starts

17 August  : EU CPI - US Univ of Michigan Sentiment

Market Commentary:

Local front - South Africa's rand slipped early on Wednesday, as a renewed slide in the Turkish lira dented appetite for emerging market assets and boosted safe-haven demand. At 08h30, the rand traded 0.2 percent weaker at 14.2800 versus the U.S. dollar, which struck a 13-month peak against a basket of major currencies. The rand, one of the most-traded emerging market currencies, is highly susceptible to swings in sentiment on global markets. The unit is down around 6 percent in the past week as investors have dumped assets seen as risky in the wake of the Turkish lira's precipitous plunge.

The lira is down more than 16 percent over the past week and fell around 0.5 percent by 0630 GMT, hurt by worries over President Tayyip Erdogan's calls for lower interest rates and worsening ties with the United States. Analysts have said the rand is likely to recover once fears over the Turkish economy recede. South Africa has a narrower current account deficit and smaller stock of short-term external debt than Turkey, and the economy is expected to grow modestly this year after a torrid first quarter. NKC Research said it expected the rand to trade in a range of 14.20 to 14.50 to the dollar on Wednesday.

Global Foreign Exchange - The dollar hit another 13-month high against a basket of major currencies on Wednesday as safe-haven demand rooted in fears over fallout from the Turkish lira's recent drop boosted the U.S. currency. The greenback's strength - overnight it also hit a 13-month high - has been bolstered by a fall for the euro, dogged by concerns over exposure of European banks to Turkey. "In light of all the turmoil we've seen out of Turkey and the subsequent contagion into other emerging markets, the dollar is pretty much establishing itself as the safe-haven currency," said Bart Wakabayashi, Tokyo branch manager at State Street Bank. “The dollar is the higher-yielding of the safe-haven currencies, so it obviously will attract the most flows. If you are going to park your money somewhere to stay away from the turmoil, the dollar is going to be the currency of choice," he said.

As of 05h53 on Wednesday, an index that tracks the dollar against the euro, yen and four other currencies rose 0.1 percent to trade as high as 96.862, its highest level since reaching 97.447 on June 27, 2017. "In the current environment, the appeal of currencies other than the dollar has faded quite a lot," said Kumiko Ishikawa, senior analyst at Sony Financial Holdings. The Turkish lira started slipping again after rebounding more than 8 percent overnight.

Erdogan said on Tuesday that Ankara would boycott electronic products from the United States, retaliating in a row with Washington. The lira was supported by remarks from Turkish Finance Minister Berat Albayrak, who told a news conference the currency will strengthen. The euro was down about 0.2 percent at 1.1324 against the greenback, crawling back after touching a new 13-month low of 1.1319."With the Bank of England unlikely to raise rates for some time (the market prices the next hike for 12 months' time), U.K. economic data will be a second-order consideration for the pound compared to Brexit negotiations for now," Nick Smyth, an interest rate strategist at BNZ Markets in Wellington, said in a note.

China – WTO -  China's commerce ministry said a U.S. decision to subsidise renewable energy firms and impose tariffs on imported products has seriously distorted the global market and harmed China's interests, firing the latest shot in a broader trade conflict. China has lodged a complaint to the World Trade Organisation to help determine the legality of the U.S. policies, saying they not only harm China's rights but also undermine the WTO's authority, the ministry said on its website late on Tuesday. Washington announced in January that it was imposing what it called safeguard tariffs over four years - with a 30 percent tariff in the first year reduced gradually to 15 percent in year four. “As the U.S. violations have severely distorted the global market for products like photovoltaics and seriously damaged China's trade interests, China's use of the WTO dispute settlement mechanism is a necessary measure to safeguard its legitimate rights and interests and maintain multilateral trade rules," the commerce ministry statement said. The move is not expected to have an immediate impact on China's major solar manufacturers, as their exposure to U.S. markets was reduced after earlier trade disputes.

Our range for the day : R14.0000 -R 14.4000