Daily Commentary - 16 August 2018

capital markets

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

USD / ZAR 14.3453 - EUR / ZAR 16.3387 - GBP / ZAR 18.2563 -

Economic Events:

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 gained more than one percent early on Wednesday as emerging markets bounced back on news that a Chinese delegation will travel to the United States in August for trade talks. The prospect of the world's two biggest economic powers preventing a looming trade war boosted investor sentiment after a worrying week for emerging markets in the wake of a currency slump in Turkey.

At 07h35, the rand traded 1.39 percent stronger at 14.3600 versus the U.S. dollar, after sliding more than two percent in the previous session on concerns over a weak domestic economic outlook and planned land reforms. The rand 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 plunge. The lira has weakened 36 percent against the dollar this year. (The rand, one of the most-traded emerging market currencies, is highly susceptible to swings in sentiment on global markets.

SARB Comments - South Africa's economic recovery will be "weak and choppy" this year after growth dropped below initial expectations, the central bank said on Wednesday, underlining the challenge facing President Cyril Ramaphosa's reform programme. In July the South African Reserve Bank (SARB) cut its 2018 growth outlook to 1.2 percent, lower than an earlier forecast for 1.7 percent, after a string of disappointing economic data in the first half of the year. In a presentation to a parliamentary committee, the SARB reiterated its cautious outlook. “The South African economy remains vulnerable," the presentation said. “The recovery in economic activity is expected to be weak and choppy, especially as consumer demand, a historical driver of upswings, slowed anew in Q2 2018." Moody’s Comments - South Africa's rand slumped on Wednesday as ratings agency Moody's warned that the pace of fiscal consolidation in Africa's most industrialised nation had slowed and retail sales data disappointed, underlining the fragility of the economy. Moody's is the only one of the "big three" ratings agencies which still has South Africa's sovereign rating in investment grade, so any hint that the agency could lower that rating easily unsettles financial markets

International front - The dollar was nudged away from a 13-month peak on Thursday as risk aversion eased and emerging market currencies bounced back on news that a Chinese delegation will travel to the United States late in August to hold trade talks. China’s Ministry of Commerce said on Thursday that it had received an invitation from the United States for talks to be held with U.S. Under Secretary of Treasury for International Affairs David Malpass. The news that the world's two biggest economic powers, currently locked in a trade war, were showing a willingness to negotiate boosted investor sentiment after a worrying week.

The dollar index against a basket of six major currencies was 0.17 percent lower at 96.536. It pulled back from a 13-month high of 96.984 scaled the previous day when currency turmoil in Turkey and concerns about China's economic health supported safe-haven assets and weighed on emerging market currencies. China’s onshore yuan, which has been rough barometer of risk sentiment, was 0.35 percent firmer at 6.911 to the dollar and off a 15-month low of 6.934 set on Wednesday. “Trade war fears had morphed into an opportunity for speculators, who had been selling the yuan and other currencies against the dollar. The news that pointed to a possible easing of U.S.-China trade tensions appears to have curbed such activity," said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities. Junichi Ishikawa, senior FX strategist at IG Securities, said that market focus was moving beyond the lira to wider political risks. “Rather than Turkey's economy, its political situation is now seen as a much larger risk. Turkey's stand-off with the United States could nudge it closer to countries like Russia, China and Iran, increasing geopolitical risks associated with the region," Ishikawa said. As the dollar sagged, the euro rose 0.25 percent to 1.1373 against the greenback after plumbing a near 14-month trough of 1.1301 on Wednesday. Concerns that European banks would be hit by financial turmoil in Turkey had weighed on the single currency (Reuters)

EUR/USD is likely to find support at 1.1289 levels and currently trading at 1.1350 levels. The pair has made session high at 1.1354 and hit lows at 1.1297 levels. The euro was little against dollar on Wednesday as trade tensions heated up as Turkish President Tayyip Erdogan doubled tariffs on some U.S. imports, and China lodged a complaint against American trade policies with the World Trade Organization. Markets are concerned by Erdogan's influence over the economy and his resistance to interest rate increases to tackle double-digit inflation. The euro is under pressure because of the impact of the Turkish lira collapse on euro zone banks with exposure to Turkey and due to concerns about a fiscal spending spree by the Italian government which is involved in a standoff with Brussels.

Our range for the day : R14.1000 - R14.7000