Daily Commentary - 17 August 2018

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

USD / ZAR 14.6731 - EUR / ZAR 16.7045 - GBP / ZAR 18.6815 -

Economic Events:

17 August  : EU CPI - US Univ of Michigan Sentiment

Market Commentary:

ZAR - South Africa's rand surrendered its earlier gains in late trade on Thursday due to lingering concerns over the economy, while a rebound in market heavyweight Naspers brought some relief on the bourse.

The rand had earlier in the session gained more than one percent 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,but the gains were erased in late afternoon trade. At 1524 GMT, the rand traded largely steady at 14.5575 versus the U.S. dollar.

 

International currency front - The dollar stepped back from 13-1/2-month highs against other major currencies on Friday as talks next week between China and the United States offered some hope that the world's two largest economies will find a way to head off a full-blown trade war. he dollar index, a measure of the greenback's strength against a basket of six major peers, was 0.1 percent lower at 96.549.It had climbed to 96.984, its highest since late June 2017 on Wednesday during a week in which a plunge by the Turkish lira and concerns over China's economic health hit emerging market currencies, driving up demand for the safe-haven greenback.

The dollar lost steam, however, after China and the United States agreed on Thursday to hold a new round of trade talks on Aug. 21-22, helping stem risk aversion in the broader markets. The euro, which had also been hit by fears of a spillover from Turkey's financial crisis, was among the currencies to benefit from the news of trade talks. The euro was a shade firmer at 1.1380 , after gaining 0.3 percent overnight. The single currency was down 0.25 percent this week, having brushed a 13-month low of $1.1301 in the wake of concerns that the Turkish crisis could hurt European banks.

"Considering that European banks' exposure to Turkey is relatively limited, this week's reaction by the euro looked overdone. But the rise in Italian bond yields amid the country's fiscal concerns may continue indefinitely and limit the bounce by the euro," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities. The Turkish lira was little changed at 5.87 per dollar, and the closure of Turkish financial markets for a string of national holidays during Aug. 21-24 also provided some respite.

The lira plunged to a record low of 7.24 on Monday before mounting a three-day rebound, helped by factors including measures by the Turkish central bank to support its currency and Qatar's pledge to invest $15 billion in Turkey. Meanwhile a rebound by onshore Chinese yuan faded, with the currency last standing a touch firmer at 6.8864 per dollar after briefly strengthening to 6.8630.

International data front - The number of Americans filing for unemployment benefits fell for a second straight week last week, suggesting no impact yet on the labor market from ongoing trade tensions between the United States and its trading partners. Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 212,000 for the week ended Aug. 11, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported. The claims data is being closely watched for signs of layoffs as a result of the Trump administration's protectionist trade policy, which has led to an escalating trade war with China and tit-for-tat import tariffs with other trading partners, including the European Union, Canada and Mexico.

Our range for the day : R14.2000 - R 14.9000