Daily Commentary - 18 September 2018 | Merchant West

Daily Commentary - 18 September 2018

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

USD / ZAR 14.8950 - EUR / ZAR 17.3942 - GBP / ZAR 19.5639 -

Economic Events:

18 September: US House Market Index

19 September: SA CPI Data - EC ECB Current Account -US Mortgage Applications ;Current Account Balance ;Housing Starts

20 September: US Initial Jobless Claims - EC Consumer Confidence - SA SARB Rate Announcement

21 September: EC Eurozone PMI Data - US PMI Data

Market Commentary:

The rand opened the trading week on the defensive as it slowly moved back towards the wrong side of the USD/ZAR 15.00 handle. The retracement was largely driven by renewed trade tensions from the US economy as President Donald Trump followed through with the imposition of another round of tariffs on the Chinese economy, dealing further blows to the already fragile emerging market economies. “Emerging market currencies including the Turkish lira, South African rand and the Mexican peso were all slightly lower on Tuesday” (source: Reuters). Another significant factor in the domestic economy will also be the South African Reserve Bank`s interest rate decision that is due to be made public on Thursday. “The consensus among economists is that the repo rate will be kept on hold at 6.5% when the Reserve Bank’s Monetary Policy Committee (MPC) meets this week” (source: Fin24). Although an interest rate change is not expected this week, economists are still of the view that it will be a necessary tool in the medium- to longer term as the inflationary pressures become evident, fuelling expectations for a hike in the fourth quarter of this year. In other local news, “South Africa’s President Cyril Ramaphosa said on Monday there would be no mass layoffs of public sector workers as his government considers various ways to pull the economy out of a recession that has rattled the rand and investor confidence” (source: Reuters).

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, traded up 0.09% as the US dollar continues to establish itself as a safe-haven currency. The persistent trade war threat has resurfaced following another move by the US President. “…U.S. President Donald Trump said on Monday that he will impose 10 percent U.S. tariffs on about $200 billion worth of Chinese imports, effective Sept. 24” (source: Reuters). President Donald Trump also mentioned another potential phase of additional tariffs, should China retaliate against the US industries. Throughout the year, the dollar has made a significant rise to power and continues to rally even higher. Furthermore, the net long USD position evidenced by data from Reuters and the Commodity Futures Trading Commission (CFTC) suggests that the majority on investors remain bullish.

In the European market, both the euro and the pound have shown improvement. Markets have become increasingly optimistic that a Brexit deal would be secured before the fast approaching deadline is reached. “Talks between the European Union and Britain on Brexit are being conducted in a spirit of “good cooperation,” Michel Barnier, the EU’s chief negotiator on the issue, said on Monday” (source: Reuters). Given the uncertainty surrounding Brexit, an argument can be supported that both the euro and the pound have been undervalued, which could quickly correct once the exit is finalised.

Our Range for the day: R14.7500 – R15.1500