Daily Commentary - 20 February 2018 | Merchant West

Daily Commentary - 20 February 2018

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

- USD / ZAR 11.7449 - EUR / ZAR 14.5179 - GBP / ZAR 16.3795 -

Economic Events:

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:

The rand has strengthened significantly since December last year when Cyril Ramaphosa took over the reigns of the ruling ANC party. Since then, the Ramaphosa rally has kept the rand afloat, however this weeks` proceedings could see to some potential rand weakness. The rand, along with other emerging market currencies, came under pressure on Monday as the US dollar made a slight comeback. The looming budget speech and credit ratings review also added further stress to the domestic currency as market participants adopted a more defensive stance. All eyes will be on this week`s budget speech, due to be delivered by Finance Minister Malusi Gigaba at 14:00 on Wednesday. According to Fin24, current Finance Minister Malusi Gigaba would likely deliver the speech, despite speculation that Ramaphosa could shake up the Cabinet before then. “Expect sharp rand reaction directly after the budget, and again when Moody’s provides its response - presumably within a day or two of the event,” said Rand Merchant Bank chief strategist John Cairns in a note.

In the US market, the dollar inched higher versus a basket of major currencies, clinging above a three-year low set last week, but its outlook was clouded by concerns that the ballooning U.S. fiscal deficit could disrupt the economy. Initially, the view that other central banks will catch up with the Federal Reserve in tightening policy this year was cited as a reason for the dollar’s underperformance. Then came comments from U.S. Treasury Secretary Steven Mnuchin, which stoked concerns the United States could pursue a weaker dollar policy as its trade deficit rose to highest level in almost a decade. Mounting worries about the U.S. budget deficit, which is projected to balloon to more than $1 trillion in 2019 amid a government spending splurge and large corporate tax cuts, have also undermined the greenback. “The dollar has been falling continuously, but with changing themes. At the moment, a projected increase in U.S. debt issuance, a reduction in Fed bond buying and bulging U.S. fiscal deficit are the main focus,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. (Source: Reuters)

In the European market, the euro eased away from a three-year high set on Friday last week. Spanish Economy Minister, Luis de Guindos was elected to succeed Vitor Constancio as Vice President of the European Central Bank.  “The move is likely to boost the chances of German Bundesbank Governor Jens Weidmann becoming head of the ECB next year to succeed Mario Draghi in 2019, possibly giving the ECB’s policy a more hawkish tilt” (source: Reuters). The euro has drawn most of its recent strength from expectations that the ECB will cut back on its stimulus program, however political uncertainty has placed a cap on performance.

In the UK market, the pound came off slightly on Monday as traders prepare for key economic data due to be released later this week. “Markets have moved to price in an interest rate hike in May, but such tightening will hinge on pay growth picking up, and on whether Prime Minister Theresa May can soon secure a transition deal for the two years after Britain quits the European Union (source: Reuters).

Our Range for the day: R11.6300 - R11.8200