Daily Commentary - 20 March 2018

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

- USD / ZAR 11.9973 - EUR / ZAR 14.8092 - GBP / ZAR 16.8487 -

Economic Events:

20 March : SA Current Account Data  ; CPI Data

21 March : US Current Account Data ; Existing Home Sales ; FED rate announcement

22 March : EC Flash PMI - SA Retail Sales  - BOE Rate Announcement  - US Initial Jobless Claims

23 March : US Durable Goods Orders

Market Commentary:

SA's Brazil moment is here, says $2.4trn fund manager - New York - A corruption scandal that led to a political transition and economic reforms was the recipe for a rally in Brazilian assets, and South Africa is at a similar turning point.Michael Bolliger, the head of emerging-market asset allocation at UBS Wealth Management, says new President Cyril Ramaphosa and the corruption charges lodged against former president Jacob Zuma on Friday are setting the stage for a repeat of what happened in Brazil. The stock market there has more than doubled and the Brazilian Real has surged 18% since early January 2016, when investors began betting on a change in government.

Traders should “act swiftly” and stay invested in South African assets to fully benefit from the expected steep jump in prices, according to the $2.4trn investment firm. In Brazil, that rally preceded an acceleration in economic growth and improved fundamentals as President Michel Temer took steps to contain public spending. Of course, it hasn’t been entirely smooth cruising for Temer, whose approval rating is the lowest among the leaders of Latin America’s major economies. His failure to push a pension overhaul through Congress drew sovereign downgrades deeper into junk territory. Ramaphosa could face similar political challenges as he looks to bolster an economy burdened by a budget deficit and mounting debt load. He may have a slightly easier time as the urgency for more austerity has been eased by changes to the next budget and a looser monetary policy.

South African equities and bonds are the country’s most attractive assets, according to Bolliger. He expects the rand to appreciate almost 9% to R11 per dollar. Bolliger says risk-tolerant investors should also be watching Venezuela, where a near-term transition of power could turn around the economy and benefit bonds issued by the government and state-owned entities. While the election in May is unlikely to unseat President Nicolas Maduro, the nation’s deepening recession will probably spur regime change in the next six to 12 months, according to Siobhan Morden, Nomura’s head of Latin America fixed-income strategy. (Fin24)

South Africa's rand steadied against the dollar early on Tuesday as investors awaited current account and consumer price inflation data due later in the day, as well as a Moody's ratings review on Friday. At 08h10, the rand traded at 12.0200 per dollar, not far off its overnight close of 12.0225.The SARB will publish the current account data of Q4 2017 while Stats SA will release CPI Data at the same time.

International front:

The euro on Tuesday held on to gains made the previous day, when it rose on revived bets for the European Central Bank to wind down its bond-buying stimulus this year and to raise interest rates around the middle of 2019. The euro, which advanced 0.4 percent on Monday, held steady on the day at 1.2336 against the greenback. The common currency had drawn strength on Monday from a source-based Reuters report that ECB policymakers are shifting the focus of their debates.

Market participants are now pondering whether the U.S. Federal Reserve, which holds a two-day policy meeting that ends on Wednesday, will signal a faster pace of rate increases in the coming months as the labour market tightens further. Interest rate futures imply traders have fully priced in a rate increase this week, which would raise the target range to between 1.50 percent and 1.75 percent. The dollar rose 0.2 percent to 106.32 yen, inching away from a 16-month low of 105.24 yen set in early March.

On technical charts, the dollar seems to have found strong support in the 105.00 to 105.50 yen area, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.He added that the dollar's yield advantage over the yen could also help bolster the greenback. “Once Japan's new financial year starts (in April), Japanese institutional investors are likely to become active in foreign bond investments," Murata said, referring to the possibility they will take on foreign-exchange risk in search of better returns abroad (Reuters)

Range on the day: 11.90-12.15