Daily Commentary -19 July 2017

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

- USD / ZAR 12.9458 - EUR / ZAR 14.9181 - GBP / ZAR 16.8685 -

Economic Events:

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 extended gains yesterday morning, drawing demand from foreign investors attracted to the high yield and importers cashing in on the currency's run to a two-week high. At 08h45, the rand traded 0.5% firmer at 12.8875 per dollar compared to its overnight close in New York.  The dollar started yesterday languishing at a 10-month low, hobbled by uncertainty over the pace of Federal Reserve rate hikes and worries that President Donald Trump will fail to deliver healthcare reforms, plus the Rand has benefited from an easing of uncertainty over economic policy since the government suspended implementing new mining laws that investors argued would deter investments.

Sadly however these gains were very short-lived and although we didn’t surrender much traded throughout the day a few cents above the opening levels in a very tight range of 12.9200 to 12.9750.

On the domestic front:

On the bourse, the benchmark Top-40 index fell 1.2% to 46,927 points while the All-Share index weakened 1.05% to 53,261 points. EOH was the biggest faller on the Johannesburg All-Share index, dropping 8.81% to 115.80 rand a share, after an opinion piece in Business Report newspaper accused the company of being involved in impropriety in its contracts with South Africa's welfare agency. "It's a very controversial article and paints them in a very negative light, that creates uncertainty and markets don't like it. Shareholders have had a knee-jerk reaction and there's been a sell-off," Independent Securities trader Ryan Woods said.

On the International front:

The dollar seems to be stayed on the defensive this morning as investors wagered any further tightening in the United States would be slow at best, while optimism on China's economy underpinned Asian shares and commodities. The U.S. currency was near multi-month lows after the collapse of the Republicans' push to overhaul healthcare dealt a blow to President Donald Trump's ability to pass promised tax cuts and infrastructure spending. The diminished prospect of fiscal spending was a boon to bonds, especially as a run of soft U.S. inflation results had lessened the risk that the Federal Reserve would need to be aggressive in removing its stimulus. "The question marks over U.S. reform on the one hand, and the underlying economic growth momentum on the other hand are likely to keep the U.S. within its current goldilocks scenario for longer," wrote analysts at Morgan Stanley in a note. "Globally, financial conditions tend to improve when the dollar is weak and vice versa," they added.

"The falling dollar – still the globe's major reserve and funding currency – tends to see risk appetite flourishing." The euro was firm at 1.1543 against the greenback, having made a 14-month top at 1.1583. Investors were wary of pushing the euro too far in case a European Central Bank policy meeting on Thursday proved less hawkish than bulls were betting on. The dollar also carved out a two-year low on the Australian dollar and a one-year trough on the Swiss franc. Losses have been more limited against the yen as the Bank of Japan has stuck with its massive stimulus campaign and stopped yields there from rising. The dollar was trading at 112.00 at the time of drafting this brief, up from a low of 111.685.

Key data out today is the Local CPI figures which have come out already (10h00 local time). The expectation was to see a print of 5.2% y-o-y, with the previous months’ print being 5.4% . The figure came out very much in line with the expectation, 0.1% softer at 5.1% which has seen no real re-action to our currency and has done little to help or weakening the Rand.

Range on the day: 12.88-13.00