Daily Commentary - 19 February 2018

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

- USD / ZAR 11.6683 - EUR / ZAR 14.4780 - GBP / ZAR 16.3538 -

Economic Events:

19 Feb : US Holiday/No data of real importance

20 Feb : EC Consumer Confidence

21 Feb :SA CPI Data - EC Manufacturing and Services PMI - SA National Budget - US Manufacturing and Service PMI ;FOMC Minutes

22 Feb : SA PPI data

23 Feb : EC CPI data

Market Commentary:

Following President Jacob Zuma`s resignation on Wednesday last week, the rand has been outperforming other emerging market currencies and appears to be on course for further gains in the weeks to come. “The final steps happened very quickly. South Africa has already got a new president. At present the FX market is clearly relieved that Jacob Zuma has gone,” said analyst at German-based Commerzbank Ulrich Leuchtmann in a note. “Ramaphosa was sworn in as head of state on Thursday after his scandal-plagued predecessor, Jacob Zuma, reluctantly resigned on orders of the ruling African National Congress after nine years in office blighted by corruption allegations and economic mismanagement” (source: Reuters). After reacting to Jacob Zuma`s resignation, the rand seemed to lose some traction leading up to President Cyril Ramaphosa`s maiden state of the nation address (SONA), but soon strengthened further after many found the SONA difficult to fault. “It was a comprehensive speech in the sense that he addressed most of issues that are prevailing in South Africa. He didn’t appear to be evasive or avoiding a particular topic. The issue he came across the strongest on was the need to eradicate corruption and reform SOEs. There was also a good focus on job creation and how it needs to take centre stage” said Kevin Lings, the chief economist at Stanlib. “South Africa’s rand steadied against the dollar in early trade on Monday, holding near a three-year high touched on Friday after President Cyril Ramaphosa said tough decisions would be made to repair the economy after years of stagnation. Market focus this week will be on Finance Minister Malusi Gigaba’s budget speech on Wednesday” (source: Reuters). On the JSE, the Top40 traded down 0.86% and the All Share down 0.69%.

In the US market, the dollar continues to hold strong after tumbling during last week`s trade, managing to buoy itself above a three-year low against other major currencies. Analysts are attributing the slight rebound to the scale of the most recent fall. “The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy. Confidence in the dollar has also been shaken by mounting worries over the U.S. budget deficit which is projected to balloon to $1 trillion in 2019 amid a government spending splurge and large corporate tax cuts” (source: Reuters).

In the European markets, the common currency has remained relatively flat after trading near a three-year high during market close on Friday “The euro’s strength has played a large role in weakening the dollar this year. Focus was on economic indicators due this week, such as Wednesday’s euro zone purchasing managers’ index and Friday’s German gross domestic product numbers, and whether they could propel the common currency higher again” (source: Reuters). Traders are also looking to British earnings data next week. Craig Erlam, a London-based analyst at OANDA, said that came in higher than expected, it is “going to feed into the expectation that the Bank of England will have to raise rates” to tackle inflationary pressures. In the UK market, the pound continued to gain on Friday as it sealed its best weekly performance since September last year. A falling dollar and growing confidence that the Bank of England will tighten monetary policy faster this year have lifted sterling, and the British currency is up 2.1 percent.

Our range for the day : R 11:5500 - R 11.7500