Daily Commentary - 23 February 2018 | Merchant West

Daily Commentary - 23 February 2018

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

- USD / ZAR 11.6528 - EUR / ZAR 14.3302 - GBP / ZAR 16.2464 -

Economic Events:

23 Feb : EC CPI data

Market Commentary:

Thus far, 2018 has been a particularly good year for the rand as the almost euphoric ‘Ramaphosa effect’  drove the rand to levels last seen a few years ago. Markets have been favouring the more business-friendly Cyril Ramaphosa since he took over leadership of the ruling ANC party in December. The weaker US dollar also helped the rand extend its recent gains and encouraged a more risk-on sentiment towards emerging market investing. “There’s a general risk-on sentiment, the rand is in positive territory and so are the rest of the emerging markets,” currency trader at RMB Bank Jan Sluis-Cremer told EWN. “Risk appetite for emerging market assets was fairly robust, with MSCI’s benchmark emerging stocks index lifted by strong gains in some Asian markets, still catching up after the Lunar New Year holidays. Investors are still awaiting details of Ramaphosa’s new cabinet, with the president saying he will screen the lifestyles of future government officials. It is not yet clear if Gigaba will keep his job” (source: Reuters). According to RMB, a cabinet reshuffle could occur as soon as the weekend. A potential cabinet reshuffle could be the rand`s last pillar of strength in the short-term, as the work of unwinding the intricate system established by the Zuma legacy still lies ahead.

In the US market, the dollar traded higher as investors returned to riskier asset classes. Financial markets have fluctuated wildly this month as investors fretted about how fast the US Federal Reserve might raise rates in the wake of data showing a pick-up in U.S. inflation. Even though broader U.S. price pressures still appear modest for now, markets are fully pricing in three rate hikes this year, one more than was seen just a few months ago. Some analysts even expect four. That in turn has stoked anxiety that many central banks will start to tighten policy and raise borrowing costs, hurting corporate earnings and clouding the outlook for what had been expected to be another solid year of global economic growth. (Source: Reuters)

In the European market, the euro remained relatively stable after slight gains earlier this week. This came after policymakers from the European Central Bank decided that it was premature for them to change their communication stance on policy normalisation. This happened despite an optimistic inflationary outlook. ECB policymakers also decided the monitor the exchange rate and to not make any sudden changes to the current loose monetary policy. In the UK market, the pound has been recovering slightly on the back of the weaker US dollar.  However the pound is still weighed down by uncertainty surrounding Brexit negotiations and the likelihood that the Bank of England will raise interest rates. Morgan Stanley strategists said long positions in sterling were the largest on its G10 currency position monitor as market expectations for a rate hike as early as May grew (Source: Reuters).

Range: 11.60 – 11.75