Daily Commentary - 23 March 2018

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

- USD / ZAR 11.8343 - EUR / ZAR 14.5896 - GBP / ZAR 16.7045 -

Economic Events:

23 March : US Durable Goods Orders

Market Commentary:

Local front:

South Africa's rand firmed slightly against the dollar early on Friday in volatile trade as investors awaited Moody's sovereign credit rating announcement due later in the day. At 08h30, the rand traded at 11.8175 per dollar, 0.34 percent firmer than its overnight close. Rating agency Moody's is set to announce whether it will downgrade South Africa's sovereign credit. It is the only major ratings agency still rating South African debt as investment grade.  Moody's rates the South Africa's foreign and local currency debt on their lowest investment grade rung of Baa3.A downgrade to junk by Moody's would see South Africa removed from Citi's influential World Government Bond Index, and could trigger up to 100 billion rand ($8.46 billion) in selling by foreign investors.

Local data front:

South Africa's retail sales rose slower than expected in January, data showed on Thursday, after a sharp rise in the final months of 2017 as the effect of Black Friday wore off. Retail sales rose by 3.1 percent year-on-year in January, after increasing by a revised 5.1 percent in December and 7.9 percent the month before that, the statistics office said. Sales by general dealers and retailers took the biggest knock, while those in cosmetics also fell, the data showed.

Analysts said that an increase in Value Added Tax (VAT) due to start in April would slow down sales further. Under new President Cyril Ramaphosa the Treasury took the politically risky step of raising VAT for the first time in 25 years in bid increase revenues and slash the budget deficit. Kevin Lings, chief economist at Stanlib, said: "We might however see some buoyancy in March as people try to get ahead of the VAT increase and then the April number may suffer as a consequence." On the depressed sales in January, Lings said it was a result of a slump in sales after the Black Friday sales. "It's the Black Friday effect. This is the second year we've had strong sales in November and December, and then the consumer almost takes a breather into the second half of December and further than that," he said.

International front:

The rumblings of a global trade war shook stock and currency markets on Friday after U.S. President Donald Trump announced long-promised tariffs on Chinese goods and Beijing pledged to fight any such war to the end. Spread betters expected European stocks to open lower, with Britain's FTSE losing 0.9 percent, Germany's DAX falling 1.6 percent and France's CAC shedding 1.5 percent. S&P futures were down 0.6 percent, suggesting a weaker open on Wall Street later in the day. Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although they have a 30-day consultation period, raising the chance that final measures could be watered down. Investors fear that the U.S. measures could escalate into a trade war, with potentially dire consequences for the global economy.

China unveiled its own plans on Friday to impose tariffs on up to $3 billion of U.S. imports in retaliation against U.S. tariffs on Chinese steel and aluminium products. MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.5 percent as stocks across the region dropped. For the week, the index recoiled over 4 percent. Shanghai shares were down 3.8 percent. "The economic impact on both China and the U.S. will be determined by what form the tariffs end up taking. The effects are likely to be felt more strongly in the U.S. and will increase both consumer and producer prices," wrote Hannah Anderson, global market strategist at J.P. Morgan Asset Management. "The equity market will bear the brunt of the market reaction. Most impacted will be the U.S., Korea, and Taiwan as companies domiciled in these markets make up a significant portion of the global production chain of Chinese exports." The euro was 0.3 percent higher at 1.2334 against the greenback. The dollar index against a basket of six major currencies slipped 0.3 percent to 89.615. It has lost roughly 0.7 percent this week, weighed down by a steady decline in U.S. Treasury yields. (Reuters)

Our range for the day : R 11.7300 - R12.0200