Daily Commentary - 16 February 2018

Merchant West Financial Services Company

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

- USD / ZAR 11.5859 - EUR / ZAR 14.5215 - GBP / ZAR 16.3645 -

Economic Events:

16 Feb : US Export /Import Prices ;Consumer Sentiment

Market Commentary:

The Rand has continued its rally against the Dollar after Zuma stepped down from the Presidential seat and handed over to Ramaphosa. The Rand has rallied to an almost 3 year high of 11.55 by early morning and is currently trading at 11.60. The rating agencies hit the wires with their initial reactions to the political developments with Moody’s citing that Ramaphosa’s comments on the outlook of South African economic and fiscal challenges and what progress is made in implementing reform will be the deciding factor on whether or not to downgrade South Africa another notch. S&P said that the rating will remain unchanged with the outlook not immediately affected by the leadership transition. Ramaphosa will get to remain on the charm offensive in delivering the State of the Nation Address tonight but more crucially, February 21 has been confirmed as the date of the budget speech which signals the next local event risk.  It has not yet been confirmed that Fin Min Gigaba will be the one to deliver the budget but no shuffles of the cabinet have been made yet.

SAGBs were by far the top performer once again in the EM fixed income space with our R186 10 year benchmark bond yields sliding another 25 bpts to 8.15%, the lowest since Nenegate. Redux for the FX market yesterday with risk sentiment continuing to improve and USD continuing to get hammered across the board with the DXY posting a new low with JPY and CHF being the top performers in highly uncharacteristic fashion. ZAR looks to be very much a flow and momentum trade now with the market exceeding expectations for the kudos it is giving to the latest political developments.

A far gloomier picture is being painted across the Atlantic with over $14bn in bonds flowing out of the US, one of the highest ever. US treasury yields rising across the board has clearly reverberated across the credit complex which has affected the allocation of fixed income instruments. Despite these flows, spreads continue to tighten on the back of a consensus of 4 rate hikes being priced in. US equities closed out the session with stronger gains, with the S&P 500 and Dow Jones both closing over 1.20% higher.  Trump has once again lost on the travel ban ruling by the second appeals panel with the panel questioning the legality of his most recent attempt to ban certain people from the US. His current version limits entry by people from Chad, Iran, Libya, Somalia, Syria and Yemen and also blocks people from North Korea.

Our Range for the day : 11.50-11.80