Daily Commentary -24 August 2017

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

- USD / ZAR 13.1967 - EUR / ZAR 15.5575 - GBP / ZAR 16.8782 -

Economic Events:

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

25-August: GE GDP - US Durable Goods Orders

Market Commentary:

Following the release of the CPI data on Wednesday, the Rand remained steady against the US dollar as the actual CPI figure came out well within expectations, based on lower transport and food costs. According to the report from Statistics South Africa, CPI was down 0.5%, from the 5.1% in June to 4.6% for July. The report also highlighted an inflation increase of 1% for transport and 6.8% for food.  Analysts commented that the newly released inflation data increased the probability of further interest-rate cuts, either in September or November.

The rand weakened against major currencies late Wednesday, despite the euro winning some ground against the US dollar on the back of statements from the US President Donald Trump which seemed to weigh on the greenback. A relatively resilient Rand, the dissipating aftermath of the drought and the deflationary effect of domestic demand conditions, should support the moderation in inflation to 5.2% in 2017, from 6.3% in 2016, said Investec economist Kamilla Kaplan. In general, markets have not been seeing much activity as investors remain cautious ahead of the central banking symposium in Jackson Hole, US later during the week. Markets are eagerly awaiting comments from ECB president Mario Draghi, and chair of the US Federal Reserve, Janet Yellen, regarding their plans on the future of their respective stimulus programs. Investors look forward to getting more insight into the central bankers’ views on balance-sheet normalisation and the interest-rate trajectory. Sasfin analysts said expectations among emerging markets, such as SA, is that balance-sheet normalisation will occur gradually, which will, in turn, see a gradual rise in emerging-market bond yields. On the bourse, the benchmark Top 40 Index ticked up 0.29% to 49 735 points while the All Share Index lifted 0.23% to 56 162 points. Government bonds were weaker, with the yield for the benchmark bond due in 2026 was up 5 basis points to 8.585%.

The central banking conference in Jackson Hole today will overshadow the markets for the remainder of this week as investors shift their focus towards this remote resort. Although analysts are not expecting any surprises, new effect of new headlines on currencies and bonds will receive close attention. The US Federal Reserve has already embarked on its journey towards interest rate normalization. Following several rate increases, plans are expected for unwinding the USD4.5 trillion balance sheet in the upcoming September policy meeting. The ECB are still building their balance sheet to the tune of EUR60 billion per month, whilst holding interest rates at extremely low levels. Investors are anxiously awaiting ECB president, Mario Draghi`s plan to unwind the stimulus. On the data front, U.S. home sales for July slipped to 571,000 from 613,000 expected, and the preliminary Markit manufacturing PMI for August also missed forecasts at 52.5, compared with 53.5 expected. Both indicators weakened from July. The U.S. dollar weakened against the euro, the Japanese yen and the Swiss franc on Wednesday, as U.S. trade and domestic policy issues reclaimed center stage and questions about the prospects for tax reform resurfaced.

Our range for the day : R 13.10 - R 13.25