Daily Commentary - 15 February 2018

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

- USD / ZAR 11.6587 - EUR / ZAR 14.5711 - GBP / ZAR 16.3736 -

Economic Events:

15 Feb : US Initial Jobless ;Industrial Production ; PPI data

16 Feb : US Export /Import Prices ;Consumer Sentiment

Market Commentary:

Valentine’s Day has signalled the end of an era as President Jacob Zuma used a late night address to the nation to resign rather than face yet another motion of no confidence. His decision leaves the leadership of the nation in the hands of the ANC’s leader, Cyril Ramaphosa. “Jacob Zuma was the wrong man at the right time,” said Sydney Mufamadi, “He had the perfect opportunity to improve the lives of the people and the build the economy. He pursued his own interests instead and was as close to a one-man disaster for the country as there could possibly be.” In the run up to his public address, it was confirmed that the Hawks had arrested one of the Gupta brothers, another is on the run and several other suspects have been taken into custody with their properties being raided. State prosecutors are also slated to announce within a couple days whether they will reinstate the charges against Zuma. Yesterday was an extremely constructive day for South African politics, however, it should be kept in mind that many of the current top ANC leadership themselves have been embroiled in corruption activities, and while Zuma is used as a great scape goat, there are many skeletons in the closet yet to surface.

SAGBs rebounded nicely yesterday finishing and were among the top EM performers with risk sentiment abroad, turning more decidedly positive with the local market remaining relatively calm in the face of the local political risks. USD/ZAR breached the 11.70 level last night after the announcement, hitting a low of 11.6650 at 22:00 last night immediately after the announcement. Dips under the 110.70 level have subsequently been scooped. The case for some more ZAR strength has been made with the next question being “how will the next cabinet reshuffle look like?” hot on the lips of investors, however as the Rand is more fairly valued and the growth cycle continues to unfold the potential for a large appreciation in the Rand is limited. It’s also important to note that the Annual Budget Speech is just 6 days away and with all the political noise over the last two months, it’s hard to believe that a budget speech similar in calibre to the one delivered in October last year has been priced in. Our politics are looking up but our fundamentals have most likely not changed at all.

US Treasury yields have broken out to new multi-year highs as bond traders increased their expectations for the number of interest rate hikes in the US to four by the end of next year after a report showed US consumer prices rose in January more than projected. USD has slumped 0.1% against its major peers.

Range: 11.60-11.85