Daily Commentary - 16 November 2017 | Merchant West

Daily Commentary - 16 November 2017

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

- USD / ZAR 14.3442 - EUR / ZAR 16.9071 - GBP / ZAR 18.8805 -

Economic Events:

16-Nov : EC CPI - US Initial Jobless Claims ;Industrial Production

17-Nov : EC ECB's Draghi Speaks in Frankfurt - US Housing Starts

Market Commentary:

The rand improved slightly yesterday, holding its ground against the USD, as buyers were lured back on higher gold prices and signs of improving economic growth. It climbed to its session best of 14.31, a technical resistance which if broken could open the door for further gains to 14.20. Traders are expecting buying levels to be concentrated at these levels as investors looked to find positions ahead of next Thursday’s rate announcement and credit rating announcement on Friday. Of the 28 economists polled by Reuters, 26 expect rates to remain unchanged. The consensus view remains that the central bank will be able to cut some time after 1Q18.

Retail sales for September rose by 5.4% year-on-year, above expectations of 4.5%. Overall retail sales volumes for Q3:17 grew 1.4% compared to 2% in Q2:17. Standard Bank’s economics team estimates that the sector may add 0.3pps to GDP growth in Q3:17. Looking ahead, retail sales will continue to benefit from a favourable inflation environment.

The situation in Zimbabwe can be seen as mildly rand negative, but should violence flare it could, according to RMB, be revised to “meaningful negative” and “cautiously optimistic positive” if new credible elections are announced.

Betting odds on the ANC National Conference have changed meaningfully with Deputy President Ramaphosa now the front runner at 38%, Dr Dlamini-Zuma at 33% and Dr Mkhize at 21%. ANC branch results are now expected to be released over the weekend.

US inflation for October came in in line with expectations of 2.0% year-on-year from a previous 2.2% year-on-year in September. Core inflation saw a marginal uptick to 1.8% from 1.7% , where it has been since May this year. Retail sales in the US came in above expectations of 0% month-on-month at 0.2% month-on-month. At this stage a rate hike in December is already priced in. The market barely reacted to these publications as the dollar slumped to a three week lows. Tax issues are also weighing on the dollar, as two key Republican senators are rejecting the latest proposals. The probability of a deal being reached this year is down to 15%. Concerns are evident in equity markets as major Wall Street indices have fallen for four straight sessions. This is however not considered a blowout as the VIX index of expected volatility is at 13, well below the 20 level that is usually associated with a major risk-off event.

As markets digest fear of cooling down in China, metal prices are on the backfoot. Oil prices fell again yesterday after IEA report showed a downward revision of demand of oil for this and next year. This signalled that on balance the current rebalancing and hopes of an OPEC agreement would still not be enough to curb supply to match falling demand.

Today the market will focus on Eurzone CPI and employment figures as well as US jobless claims. So for today local factors are not in focus and affecting trade sentiment. Focus has now turned to macro factors influencing trading.

Expected range: 14.30 – 14.50