Daily Commentary - 22 August 2018

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

USD / ZAR 14.4284 - EUR / ZAR 16.6818 - GBP / ZAR 18.5943 -

Economic Events:

22 August: SA CPI Data - US Existing Home Sales

23 August: EC Germany PMI Data ;Euro Zone PMI Data - US Initial Jobless Claims -EC Consumer Confidence Figures

24 August  : US Durable Goods Orders

Market Commentary:

A softer dollar has eased pressure on emerging markets. The Rand firmed 0.7% to close at R14.4125/$.Yet another reason we might be seeing the ZAR appreciate is due to the fact that Turkey is on holiday for EID this week. The ZAR is far from being one of the better performers and rank no 10 out of 24 in terms of spot returns over the past five trading sessions. Intra-day, technical analysis continues to reflect a corrective bias that favours the ZAR ,it seems the ZAR from a heavily overbought position ,the USD/ZAR is recovering and is showing potential to recover move. Today’s inflation economic data print for July will give a signal on the effect of the Rand’s depreciation on consumer prices. If inflation is higher than expected it may fuel rate hike expectations, which may bolster the Rand. Another event to watch today is President Ramaphosa’s session in parliament where he will no doubt be answering many questions on land reforms. ( Source : Investec and Absa)

The leading indicators data that was released yesterday represented the highest reading in four months and reflects an early sign of potential improvement. However, it is off a soft base and the level of improvement is simply not strong enough to meaningfully close any output gap. Furthermore, the latest M3 and PSCE data shows very little sign of growth in credit being extended to households and businesses, implying that there is simply no monetary room for inflation to take hold to the degree feared. Instead, in such a monetary constrained environment, the combination of an increased tax burden and price shocks related to the ZAR price of oil, will turn into something more recessionary than inflationary.

International

Tuesday saw the Dollar continue its slide lower following an impressive run of 2018 gains. A lot of the pressure on the Dollar can be attributed to US President Trump’s criticism of the FED chair for raising interest rates. The dollar index, which tracks performance against a basket of six major currencies, fell 0.7% on Tuesday to close at 95.256, and is down approximately 1.2% over the past four days. The Euro rallied 0.75% to close at $1.1569 on the back of President Trump’s criticism of FED chair Powell. The British Pound was able to extend its recovery off last week’s 2018 lows. The Pound strengthened 0.8% to close at $1.2899, getting a boost from profit taking on US Dollar longs.( Source: Investec and Absa)

Our range for the day: R 14.3500 – R14.6000