Daily Commentary - 21 February 2018 | Merchant West

Daily Commentary - 21 February 2018

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

- USD / ZAR 11.7283 - EUR / ZAR 14.4440 - GBP / ZAR 16.3835 -

Economic Events:

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:

During the course of the last few weeks, the rand has been trading at levels last seen almost three years ago and has been attributed to the so-called ‘Ramaphosa rally’. The newly elected President of the ANC, Cyril Ramaphosa, has spurred investors` confidence in improved economic conditions locally. Now, despite the optimism and the rand`s recent bout of strength, the momentum seems to be slowing as South Africans prepares to receive the budget speech later today. This has also been the case on a technical level as analysts are of the opinion that short-term gains are limited.  Market participants will be keeping a close eye on today`s budget speech, due to commence at 14:00. A large degree of rand volatility is expected to surround the budget speech, with some expecting swings in excess of 20cents against the US dollar. Market participants should remain cautious as the outcomes could prove highly variable.

In the US market,  the dollar inched higher on Wednesday as the near-term focus shifted to the minutes of the Federal Reserve’s last policy meeting for hints on the future pace of U.S. monetary tightening. Market participants attributed the dollar’s bounce over the past few sessions to short-covering after speculative trades helped push it down. Later on Wednesday, investors will turn their attention to the minutes of the U.S. Federal Reserve’s last policy meeting in late January. A hawkish tone to the minutes could prompt markets to price in the risk of a faster U.S. interest rate hikes and help lift the dollar further, said Saxo Markets’ Tareck Horchani. Traders are also watching this week’s large U.S. government debt auctions for clues to international investors’ appetite for U.S. assets. (Source: Reuters)

In the European markets, the euro continued to retrace previous gains for a second consecutive day. In the UK, the pound recovered against other major currencies after a media report revealed that Britain will be granted single market access by the European Parliament. Growing hopes that Britain and the European Union can agree a transition deal, and then terms for the UK that allow it to remain as close as possible to the trading bloc, have helped support sterling this year (source: Reuters).

In other news,  South Africa would face further ratings pressure if it experienced more fiscal deterioration and if policymakers did not take steps to improve governance and boost economic growth. This was the warning signalled by Konrad Reuss, managing director and regional head for Africa at S&P Global Ratings, on Tuesday. Reuss said there would be “upside potential” for the country’s ratings if there was much higher economic growth, fiscal problems were addressed and policy reforms implemented.  (Source: Moneyweb)

Our range for the day :  R 11.65 - R11.80 ( Prior to Budget Speech )