Daily Commentary - 18 July 2017

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

- USD / ZAR 12.9336 - EUR / ZAR 14.8953 - GBP / ZAR 16.9442 -

Economic Events:

18-July: EU CPI- US TIC flows

19-July: SA CPI - US Mortgage Applications - SA Retail Sales - US Housing Starts

20-July: EC ECB Current Account - US Jobless Claims - SA Interest Rate Announcements

21-July: No data of real importance

Market Commentary:

South Africa's rand reached its firmest level in two weeks as the suspension of new mining laws and weak data from the United States pushed the currency past crucial technical levels and lured back investors hungry for high yields. By 17h00 the rand had gained 0.86 percent to trade as low as 12.9175against the greenback, a touch softer than the session-best 12.8900.The rand has now advanced nearly 5 percent from a two-week low in the previous week, aided by calm in the local political situation and dimming speculation of more than one rate rise in the United States. The lure of the rand as a carry trade has also been boosted by expectations that the central bank will again keep benchmark rates unchanged at the end of its policy meeting on Thursday. On the bourse, the benchmark Top-40 index ticked up 0.4 percent to 47,499 points while the All-Share index  rose 0.43 percent to 53,827 points.

South Africa's Reserve Bank is expected to leave interest rates unchanged at its July 20 meeting, according to a Reuters poll released on Monday, but economists expect a dovish statement as the Bank gets closer to its easing cycle. Twenty-four of 27 economists said the Reserve Bank will hold rates at 7.00 percent on Thursday. Two predicted a 25-basis- point cut and one expects the repo rate to be cut by half a percent. Economic growth in South Africa will be weaker this year after the country slipped into recession in the first quarter, and with inflation easing an interest rate cut is expected in the first quarter of next year.

International front:

The U.S. dollar sank to a 10-month low against a basket of major currencies on Tuesday, hobbled by uncertainty over the pace of the Federal Reserve's policy tightening and worries that President Donald Trump will fail to deliver healthcare reforms. The dollar's index against a basket of six major currencies sank to a 10-month low of 94.75. From its 14-year peak of 103.82 touched on Jan. 3, it has lost 8.4 percent. Two more Republican Senators, Jerry Moran and Mike Lee, announced their opposition on Monday to a revised Republican healthcare bill, delivering a serious blow to the legislation. "If the bills won't pass, there will be no money for tax cuts. The implementation of his fiscal policy will be difficult," said Bart Wakabayashi, Tokyo Branch Manager of State Street. Friday's weak reading on U.S. inflation and retail sales also fanned speculation that the Fed may not have justification for another rate hike by the end of this year, despite policymakers' projection for such a move. The dollar's loss accelerated after the euro rose above a major big number of $1.15.

On the International data front:

Euro zone headline inflation slowed in June but the core figure excluding volatile unprocessed food and energy rose, the European Union's statistics office said on Monday, confirming its earlier flash estimates. Eurostat said consumer prices in the 19 countries sharing the euro rose 1.3 percent year-on-year in June, in line with market expectations, decelerating form 1.4 percent in May and 1.9 percent in April. But its core measure of price growth, which excludes unprocessed food and energy and is closely watched by the European Central Bank, rose to 1.2 percent on the year from 1.0 percent in May.

On a monthly basis, headline inflation was zero in June, while core inflation was 0.2 percent, Eurostat said. Headline inflation eased in June mostly because of the marked slowdown of energy prices, which grew by 1.9 percent year-on-year from 4.5 percent in May and 7.6 percent in April. On the month, energy prices were down 0.9 percent. Inflation also slowed down to 1.4 percent on the year for food, alcohol and tobacco products in June from 1.5 percent in May. On the month, prices for this indicator decreased by 0.2 percent. (Reuters)

Our Range for today:  R12.82 – R12.98