Daily Commentary - 16 January 2018 | Merchant West

Daily Commentary - 16 January 2018

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

- USD / ZAR 12.3361 - EUR / ZAR 15.1359 - GBP / ZAR 17.0171 -

Economic Events:

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 Africa's rand strengthened slightly yesterday, helped by a weaker dollar and by reports that the ruling African National Congress party was preparing to discuss whether President Jacob Zuma should step down as head of state. At 17h22, the currency was at 12.3150 versus the dollar, up 0.4% from its close on Friday. Two senior ANC sources told Reuters that the ANC's national executive would discuss at a meeting this week whether Zuma should step down.

Zuma's presidency, tainted by corruption accusations which he denies, has tarnished the image of Africa's oldest liberation movement and seen the economy slow to a near-standstill. The Rand has been trading in a narrow range between 12.25-12.43 give and take. A central bank interest rate decision on Thursday is also in investors' minds, though the Reserve Bank is expected to keep its key rate unchanged at 6.75%. In the equities market, stocks strengthened, supported by gold and platinum shares as prices for those precious metals benefited from a weaker dollar. The benchmark Top-40 index rose 0.25% to 53,431 points, while the All-Share index climbed 0.26% to 60,240 points.

Among decliners, retailer Woolworths Holdings fell 5.50% to 59.85 after flagging up to a 17.5% decline in half-year profit. “It's quite disappointing, it (headline earnings per share) didn't come up to the market's expectation. At a glance, the businesses which they bought in Australia are not doing as well as the market expected," Cratos Capital equities trader Greg Davies said of Woolworths' financial results.

On the International front:

The euro held steady on Tuesday, taking a breather after having rallied on the back of optimism about the euro zone's economic outlook and expectations for the European Central Bank to wind down its massive monetary stimulus. Comments by the Estonian central bank chief and ECB rate-setter Ardo Hansson yesterday reinforced those expectations, with Hansson telling a German newspaper that the ECB could end its 2.55 trillion euro bond-buying scheme in one step after September if the economy and inflation develop as now expected.

The euro last changed hands at 1.2263 against the greenback, staying within sight of Monday's peak of about 1.2296, its strongest since December 2014. Market participants said they expect the euro to remain on solid footing in the near term. "The markets are going to continue on with this trend," said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, referring to the euro's recent gains.

Although there is focus on whether the euro's strength would soon worry the ECB and encourage it to talk down the currency, there has been little sign of such push-back from the ECB so far, Innes said.The dollar's index against a basket of six major currencies stood at 90.509, having pulled up from yesterday’s three-year low of 90.279. "We have been of the view that the risk on the euro/dollar is still on the upside," said Tan Teck Leng, forex analyst for UBS Wealth Management in Singapore.  “The euro is still not at a level that should concern the ECB," Tan said, adding that the euro's recent strength seems to have had little negative effect on euro zone business sentiment or exports.

Our range for the day: 12.22-12.42