Daily Commentary - 18 September 2017

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

- USD / ZAR 13.2103 - EUR / ZAR 15.7593 - GBP / ZAR 17.9141 -

Economic Events:

18-Sep: No data of real importance

19-Sep: US Housing Starts ; Current Account Balance

20-Sep: SA CPI - US FOMC Rate Decision

21-Sep: US Jobless Claims - EC Consumer Confidence - SA Interest Rate Decision

22-Sep: EC Eurozone PMI Data - US PMI

Market Commentary:

South Africa's rand steadied against the dollar early on Friday after slipping to three-week lows in the previous session as data showed the current account deficit widened in the second quarter. At 08h45, the rand traded at 13.1300 per dollar, not far off its overnight close of 13.1350. South Africa's current account deficit data published on Thursday, widened to the equivalent of 2.4 percent of GDP as an increased trade surplus was offset by a larger shortfall on services, income and current transfer payments. Analysts expect domestic political risks intertwined with the ongoing risk of further credit rating downgrades and changes in global risk appetite to keep the rand volatile over the short to medium term. Local focus is also shifting to August consumer price inflation data and the central bank interest rates decision due this week Thursday. It’s widely expected that the SARB will indeed cut the Repo Rate by another 25 Bpts.

On the International front:

The dollar held firm near a seven-week high versus the yen on Monday, supported by recent rises in U.S. yields, while sterling took a breather after surging last week on growing expectations that the Bank of England could raise interest rates soon. The dollar rose 0.3 percent to 111.19 YEN, trading within sight of Friday's peak at 111.33 yen, the dollar's highest level since late July.

The dollar gained nearly 2.8 percent against the yen last week, buoyed by a rise in U.S. Treasury yields that bolstered the greenback's appeal, and as data showing a pick-up in U.S. consumer prices helped rekindle expectations that the Federal Reserve could raise interest rates again in December. "We've certainly seen some adjustment on the December rate hike probabilities. I think that may carry the day at least until we get into the FOMC," said Stephen Innes, head of trading in Asia-Pacific for Oanda, referring to this week's Fed policy meeting.

Investors will be watching the Fed's views on the outlook for the economy and inflation, as well as possible assessments of the impact from Hurricanes Harvey and Irma. The euro held steady at 1.1946 against the greenback, staying below a 2-1/2 year high of $1.2092 set earlier this month. Sterling held steady against the dollar after having rallied sharply last week on growing bets the Bank of England will raise interest rates soon. On Friday, sterling rose past the 1.36 level for the first time since the Brexit vote, after comments from BoE policymaker Gertjan Vlieghe echoed the central bank's signal that the first rate increase in a decade could happen in "coming months".

International data front:

U.S. retail sales unexpectedly fell in August as Hurricane Harvey likely depressed motor vehicle purchases, suggesting a moderation in consumer spending in the third quarter. The Commerce Department said on Friday retail sales dropped 0.2 percent last month. Data for July was revised to show sales increasing 0.3 percent instead of the previously reported 0.6 percent jump. Economists polled by Reuters had forecast retail sales nudging up 0.1 percent. The Commerce Department said while it could not isolate the impact of Harvey on retail sales, it had received indications from companies that the hurricane had "both positive and negative effects on their sales data while others indicated they were not impacted at all." Despite sluggish wage growth even as the labour market nears full employment, the fundamentals for consumer spending are solid. The stock market is near record highs and house prices have maintained their advance, increasing household wealth. Last month, sales at building material stores fell 0.5 percent after surging 0.9 percent in July. Clean-up efforts in the aftermath of Harvey as well as Hurricane Irma, which struck Florida last weekend, could buoy sales of building materials in September.

Our Range for the day: R13.0500 - R13.2500