Daily Commentary - 21 August 2017

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

- USD / ZAR 13.2127 - EUR / ZAR 15.5169 - GBP / ZAR 17.0090 -

Economic Events:

21-August: No data of real importance

22-August: SA Leading Indicator - US House Price Purchase Index

23-August: EU Markit Manufacturing PMI - SA CPI Data - US Markit  Manufacturing PMI ;New Home Sales

24-August: UK GDP - US Initial Jobless Claims ; Existing Home Sales

25-August: GE GDP - US Durable Goods Orders

Market Commentary:

The rand took centre stage in last week`s volatile trading session with an intraday low of USD/ZAR 13.31 after opening at USD/ZAR 13.19 on Thursday. The recent rand rally could be attributed to the weaker US dollar as the dollar index lost traction and local indicators signalled a possible economic turnaround. These indicators include increased year-on-year retail sales and a narrower current account deficit, adding to the rand`s positive short-term outlook. "If you look through the political noise, economic fundamentals are pointing to ZAR resilience. We're bullish, not aggressively so but we're seeing the dust settle and the rand testing the downside," said Halen Bothma of ETM analytics. "Very encouragingly, in the past three months from April to June retail sales rose by a substantial 2.1 %, which should help to boost the Q2 2017 GDP growth estimate, helping to pull South Africa out of recession," said Stanlib economist Kevin Lings.

The dollar has had a rough ride so far in 2017, broadly losing around 10 per cent of its value against a range of major currencies, with the odds slanted to the downtrend continuing for quite some time. The US dollar`s slide started last week Wednesday following the release of the Fed`s last policy meeting minutes. The previous meeting, which unanimously decided to leave rates unchanged, has set the stage for discussions around the recent soft inflation and has provided reasons for concern in the markets.

The JSE did not escape the trend on global exchanges as it ended the week in the red, as larger market-cap stocks continued to trade under pressure. Gold shares ended the week amongst the top performers with the gold index seeing a 3% gain, as investors turned to safer havens. This risk-off attitude was largely driven by fears concerning the Trump administration’s ability to push through its economic agenda, US policy paralysis and North Korea tensions. US shares traded lower as the S&P500 saw its second-biggest sell-off in the current year. European shares also extended their losses in the wake of the Barcelona terrorist attack.

The pound continued to rake in gains against the euro last week as UK retail sales exceeded forecasts. The positive retail sales data came shortly after data showed UK`s unemployment rate at its lowest level since 1975 and higher than expected wage increases. The Brexit debate is expected to dominate this week as negotiations come to an end before the next round of talks start off next week. The markets are expecting the release of two Brexit position papers this week regarding data protection and the regulation of goods. The data impact from a currency perspective could be minimal but the reactions of European officials might be of note.

Our range for the day: R 13.14 -R 13.34.