Daily Commentary - 18 October 2017

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

- USD / ZAR 13.4450 - EUR / ZAR 15.8186 - GBP / ZAR 17.7201 -

Economic Events:

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:

A “pro nuclear” surprise cabinet reshuffle occurred yesterday where Zuma moved our state security minister, David Mahlobo, into the position of Minister of Energy.  Another blatant move from our president to try and get this Russian nuclear deal up and running.  “Mahlobo has accompanied Zuma on many visits to Russia, presumably to lay the ground for a Rosatom nuclear deal” said Lawson Naidoo of the council for the Advancement of South African Constitution.  It was the 12th time in his tenure that Zuma has reshuffled his cabinet which exposes himself as an individual more concerned with advancing his own agendas than genuinely having the country’s best interests at heart.  It’s no surprise that the Rand then lost some ground yesterday, dropping 0.5% in a matter of minutes after the announcement hitting a high of 13.46 against the Greenback, however it’s quite apparent that investors have grown desensitized to Zuma’s political manoeuvring so losses were kept to a minimum and we open at 13.40 this morning.

The political environment continues to layer an unfortunate risk premium on SA assets that are forced to trade at a discount in hard currency times and form part and parcel of the reason why the Rand continues to be undervalued versus the Greenback in the long-term.  Today we have the release of our CPI and retail sales which will offer some relief from the political backdrop.  Softer than expected reading in both measures will strengthen the case for the Rand to retain some resilience and is not yet vulnerable to a full-scale blow-off.

Trump will most probably make his decision regarding the new Fed Chair on the 3rd of November with Powell, Taylor, Warsh, Cohn and Yellen herself all in the running – all candidates barring Powell and Cohn will likely be more hawkishly biased than Janet Yellen.  The main focus overnight was on the deadlock between Canada and Mexico in the NAFTA debacle where talks are due to drag into 2018.  Trumps massive tax cutting plan has hit its first speed bump where fiscal hawk Rand Paul suggested that he may vote against the measure, hinting that the only way it can work is if spending is kept within spending caps.

Our Range for the day: R13.2500 - R13.5200