Daily Commentary - 17 October 2017

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

- USD / ZAR 13.3066 - EUR / ZAR 15.6664 - GBP / ZAR 17.6682 -

Economic Events:

17-Oct: EU  Inflation Rate  ; Economic Sentiment - US Import and Export Prices ; Industrial Production ;Housing Market Index

18-Oct: SA Inflation Rate ; Retail Sales - GB Unemployment Rate

19-Oct : US Initial Jobless Claims ; Manufacturing Index

20-Oct : US Existing Home Sales

Market Commentary:

The Rand opens today at 13.32 and has managed to hold onto its gains much better than what was expected. The risks are still to the top side on USD/ZAR as the Rand is thought to have appreciated too quickly, outpacing its EM peers in last week’s trading. The longer the Rand manages to hold onto its gains, the more the market will reset to these levels but it’s too early to dismiss the hazards of a reversal. 

The SARB Deputy Governor, Daniel Mminele, gave a speech yesterday to the Central Banking Seminar of the Federal Reserve of New York on how the SARB was setting monetary policy to negotiate South Africa’s problems. Mminele, much like Janet Yellen, mentioned that the SARB has also been caught off guard by the scale of the decline in both core and headline CPI. He warned that “current rates of inflation are not expected to fully persist” and that the risks to the inflation outlook are skewed to the upside. He also touched on rising public debt and the huge funding needs of South Africa’s state owned enterprises as being the largest risks to the Rand in the current economic backdrop. Investors will be looking forward to tomorrow’s inflation and retails sales print. SA inflation rate is expected to tick up to 4.9%, while the consensus is for Retail Sales to increase by 0.5%

For the Greenback, there was very little to trade on yesterday outside of the rumours of who will succeed Janet Yellen to be the next Fed Chair. John Taylor is seen as having the best shot as he was well received by Trump. As the candidates that have the best shot are all seen as being more aggressive than Janet Yellen its seen as a hawkish prospect for the Dollar but its all speculation at this point. The main development this week will be when the Senate votes on budget to pave the way for Trumps tax reform tactic. Today we have US industrial and manufacturing production figures out which will help give us a further update on the underlying cyclical strength of the US economy, a strong print of which would definitely translate  into further speculation of a December fed hike.

The Eurozone is also due to release their core and headline inflation figures for September. We can expect a spotlight to be shone on the political sphere in the aftermath of the Austrian election outcome where a far-right party was elected and has formed a coalition with what journalists are calling “a party founded by ex-Nazis”.

Our Range for the day:  R13.2500 - R13.4000