Daily Commentary - 15 March 2018

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

- USD / ZAR 11.8048 - EUR / ZAR 14.6041 - GBP / ZAR 16.5090 -

Economic Events:

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 Wednesday, the rand succeeded in holding onto its gains made earlier in the week on the back of political turmoil in the United States when Secretary of State Rex Tillerson made his exit from the Trump administration, and upbeat manufacturing data in the local market. The rand has also gained support as Finance Minister Nhlanhla Nene, along with other business representatives, continued on their investment roadshow. Demand for the rand was also sustained by business confidence figures showing the index rose to 45 points in the first quarter from 34 points in the fourth quarter (source: Moneyweb). However, the rand is expected to trade largely range-bound over the coming week as market participants brace for the potential impact of the March 23rd announcement by Moody`s ratings agency, who have previously placed South Africa on a downgrade review.

In the US market, the dollar is struggling to gain traction as the threat of a global trade war weighs on investor sentiment and risk appetite. Markets are also fearful of increased protectionism following the exit of the US Secretary of State, Rex Tillerson. The Trump administration is also putting pressure on China to reduce their current trade surplus by $100 billion. “The fear of an escalating trade war with China has global markets on edge with investors taking a defensive posture,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore said in a note (source: Reuters). Weaker than expected retail sales also hurt the dollar, and “should further prompt the Federal Reserve to raise interest rates at a gradual pace. The market still expects the Fed to raise rates three times this year, starting at next week’s monetary policy meeting” (source: Reuters).

In the European market, the euro lost nearly 0.2% on Wednesday as ECB President Mario Draghi adopted a more dovish rhetoric. The ECB is not yet convinced that inflation is approaching their target level, which could delay their transition from the current easy monetary policy. The Italian election has also attracted the attention of the markets as the “defeated centre-left Democratic Party (PD) could give a majority to either the conservative bloc or the anti-establishment 5-Star. Outgoing leader Matteo Renzi has said that his party will head into opposition and ruled out any alliance” (source: Moneyweb). In the UK market, the pound retraced earlier gains on the back of a slightly more stable US dollar. Any further pound gains may be limited until clearer Brexit terms enter the market.

Our Range for the day:  R11.7000 - R11.9000