Daily Commentary - 15 January 2018

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

- USD / ZAR 12.3860 - EUR / ZAR 15.1192 - GBP / ZAR 17.0342 -

Economic Events:

15 Jan : No data of real importance

16 Jan : No data of real importance

17 Jan : Euro Zone Inflation Data - SA Retail Sales - US Industrial Production

18 Jan : SARB Rate Announcement - US Housing Starts ;Initial Jobless Claims

19 Jan : US University Michigan Sentiment

Market Commentary:

On the domestic front:

South African shares firmed on Friday, supported by resources stocks lifted by better than expected Chinese trade data, while the rand slipped in cautious trading ahead of a weekend speech by the leader of the ruling African National Congress party. The rand was down 0.18 percent at 12.4150 to the dollar by 17h52, on course for a weekly decline of about 1%.

The benchmark Top-40 index , meanwhile, rose 0.9 percent to 53,296 points, while the All-Share index was up 0.8 percent at 60,083.

Despite a slowdown in China's December trade data the overall picture for 2017 was one of strong global appetite for Chinese products, with exports beating analyst forecasts, up 10.9 percent from a year earlier. The slight dip in the rand reflected investor caution ahead of an important speech on Saturday by ANC leader Cyril Ramaphosa.

The new leader of South Africa's ruling African National Congress (ANC) party, Cyril Ramaphosa, has said the question of whether President Jacob Zuma should step down would be addressed "as time goes on". There has been widespread speculation that Ramaphosa and his allies are lobbying ANC members to oust Zuma as head of state in the coming weeks, but he made no mention of Zuma's future in a closely watched speech on Saturday.

In the interview to South Africa's eNCA television station, Ramaphosa said the issue of whether the ANC would push for Zuma to step down as president "will be dealt with, you know, as time goes on".In a statement issued in response to the interview, South Africa's presidency said Zuma and Ramaphosa had agreed to hold regular meetings "to ensure synergy between the governing party and government." Ramaphosa said Zuma was a "deployee of the ANC" and that the ANC "dictates to all of us". He added that he knew South African people were impatient for change but that "we should not humiliate President Zuma."

Markets have rallied since Ramaphosa's election as ANC leader in December, as investors have warmed to his promises to root out corruption and kick-start economic growth. Any sign that Zuma could step down before his second presidential term ends in 2019 has tended to lift South African assets, including the Rand.

Ramaphosa faces a difficult balancing act as he struggles to unite a party which has been beset by bitter infighting for the past year. A faction within the ANC opposed his bid for party leader and is more closely aligned with Zuma.

International front:

The dollar wallowed at a three-year low against a basket of currencies on Monday, while the euro took a breather after soaring on hopes that European Central Bank policymakers were gearing up to further trim their monetary stimulus. The dollar index, which tracks the greenback against a basket of currencies, edged down 0.1 percent to 90.931 after falling as far as 90.857 earlier in the session, its lowest since January, 2015.

The euro was down 0.1 percent at 1.2191 against the greenback, but remained in sight of its peak of 1.2218 marked on Friday, its highest since December, 2014, leaving strategists to ponder where its next top might be. "I think the strength of the euro is overdone," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. "The strength of the euro itself will delay the ECB's normalization. The ECB is conducting verbal tightening, so they don't need to move on interest rates." Against the yen, the dollar slipped to its lowest levels since mid-September, as comments from Japan's central bank governor underscored Japan's economic recovery.

While Bank of Japan Governor Haruhiko Kuroda reiterated the central bank's resolve to maintain its massive stimulus program until 2 percent inflation is achieved stably, he also said the country's economy was expected to continue moderately expanding. The dollar was 0.1-percent lower at 110.90 , after earlier falling as far as 110.82 soon after Kuroda's remarks. On Friday, the British currency jumped to its highest levels against the dollar since the Brexit vote in June, 2016, after a report that the Netherlands and Spain were open to a deal for Britain to remain as close as possible to the European Union.

Range on the day:12.30-12.45