Daily Commentary - 19 October 2017

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

- USD / ZAR 13.5226 - EUR / ZAR 15.9662 - GBP / ZAR 17.8307 -

Economic Events:

19-Oct : US Initial Jobless Claims ; Manufacturing Index

20-Oct : US Existing Home Sales

Market Commentary:

30 years ago to the day, on Black Monday, Wall Street experienced its largest fall ever recorder with the Dow dropping over 20%. Every 10 years since, there has been another financial crisis. 1997 we saw the Asian crisis and in 2007 we saw the sub-prime crisis. This could be cause for suspicion, or should I rather say superstition, but baring another financial crisis today, the Rand is poised to gain against the Greenback. The sharp selloff in the Rand over the last couple of days has been due to the pro-nuclear cabinet reshuffle and a general rebalancing of USD/ZAR after the Rand gained far too aggressively last week. The Rand is currently trading at 13.55 and is bang in line with where other EM currencies are trading and the reshuffle should be priced in. Yesterday we saw the latest round of CPI and Retail sales data released. Inflation has ticked up to 5.1% YoY and retail sales also had a decent print with it coming out at 5.5% YoY.

We start the day with a very noisy political backdrop in South Africa, some good and some bad. Starting with the positive news, SAA chair Dudu Myeni has allegedly been removed from her post as financial institutions start to put more pressure on the National Treasury to remove her and her influence. Eskom is also in the news today where the CEO, Koko, is coming under fire for a conflict of interest that was not disclosed when he signed off on contracts to companies of which a family member was integrally involved – a standard South African SOE headline.

Fed Chair succession is expected to dominate headlines for the next couple of days. Trump is due to make his decision “soon”. Trump is due to interview Yellen for the position today. The polls currently have Powell leading with a 40% chance, Warsh is second at 21% and Yellen has surged up to 17% ahead of her meeting . Vice Chair, Dudley, commented yesterday on a possible 3 rate hikes in 2018 and has helped affirm market pricing for a December Rate Hike as a done deal. The Dollar flexed its muscles a bit yesterday, pushing EUR/USD to 1.1740 but was unable to hold onto any of its gains with the pair pushing back to 1.18 by early morning trade. This opens the gates for gains on all risk currencies which argues for the Rand to target 13.30 in the short term. Janet Yellen may be giving her last speech as Fed Chair on Saturday where investors will look for more clues on rate hikes beyond December and policymaker’s views on the confusing US inflationary stance. A slower hiking cycle for 2018 will favour the Rand, especially if the SARB remains on hold for longer.

Our Range for the day: R13.4000 - R13.6500