Daily Commentary - 20 September 2018 | Merchant West

Daily Commentary - 20 September 2018

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

USD / ZAR 14.4884 - EUR / ZAR 16.9522 - GBP / ZAR 19.0947 -

Economic Events

20 September: US Initial Jobless Claims - EC Consumer Confidence - SA SARB Rate Announcement

21 September: EC Eurozone PMI Data - US PMI Data

Market Commentary:

The rand experienced some relief yesterday as inflation figures released by Statistics South Africa came in well below expectations. “South Africa’s headline consumer inflation slowed to 4.9 percent year-on-year in August, with economists having expected CPI to rise to 5.2 percent year-on-year” (source: Reuters). With the inflation data serving as a precursor, markets will closely follow today`s interest rate announcement by the Monetary Policy Committee in search of clues on how the central bank will support the fragile domestic economy. Expectations are for the SARB to adopt a more hawkish rhetoric as the state of the economy and the value of the local currency deteriorates. According to an article published by Business Tech, Investec economist Annabel Bishop said in a note that the CPI inflation outcome will alleviate the expected upward trajectory in CPI inflation for the rest of this year and into next year, which will reduce the pressure to hike interest rates. Also, only three of the 19 economists in a Bloomberg survey project that the panel will raise its benchmark rate for the first time since 2016. The rest forecast an unchanged stance of 6.5%. However, from a different perspective, “After Turkey and Russia surprised traders last week with more hawkish-than-anticipated policy moves, there’s an outside chance the South African Reserve Bank may follow in their footsteps by raising interest rates on Thursday after the rand slumped to a two-year low” (source: Moneyweb). On the JSE, the Top 40 traded up 0.1% and the All Share up 0.11%.

In the US market, the dollar is battling to regain traction as it continues to trade near a multi-week low against other major currencies. “China and the United States plunged deeper into a trade war after President Donald Trump levied tariffs on $200 billion worth of Chinese goods, which drew quick retaliatory duties from Beijing on about $60 billion worth of U.S. goods” (source: Reuters). However, the dollar`s appeal as a safe-haven currency quickly faded as markets mulled the idea that the trade dispute between the world`s two largest economies was not as severe. “After a knee-jerk reaction to new tit-for-tat tariffs announced by Washington and Beijing on Tuesday, markets now appear to be taking a somewhat longer view, reckoning the fallout will take some time to show up in corporate earnings and not produce a sharp global shock” (source: Reuters).

In the European market, the euro has remained fairly stable over recent months with only slight gains. In the UK market, “The British pound had hit two-month highs on Wednesday after UK inflation data overshot market expectations, but it retreated after the Times reported that Prime Minister Theresa May had rejected an improved offer from the EU to solve the Irish border issue” (source: Reuters).

Our range for the day : R14.3000 -R 14.6500