Daily Commentary - 24 October 2017

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

- USD / ZAR 13.7187 - EUR / ZAR 16.1343 - GBP / ZAR 18.1022 -

Economic Events:

24-Oct: EU  PPI   - US PMI (Services)

25-Oct: UK GDP  - SA MTBPS - US Durable Goods Orders ; New Home Sales

26-Oct : SA PPI - EU Interest Rate announcement - US Initial Jobless Claims

27-Oct : US GDP ; Univ. Michigan Sentiment

Market Commentary:

On Monday, the rand stood firm as the US dollar surged once again. The rand has lost significant ground during the last week over fears that deputy president Cyril Ramaphosa might be the next to get axed by President Jacob Zuma. However, Zuma`s office has since denied the rumours and market attention has been diverted to the upcoming budget speech, due to be tabled on Wednesday by Finance Minister Malusi Gigaba. Given the R40bn tax collection shortfall, markets will pay close attention to his proposed spending policies. Growth prospects for South Africa has become a major focus point for investors, and without reasonable assurance coming from the budget outline, the local currency could see further weakness. In the case that the budget turns out to be rand positive, potential rand strength will be capped as investors will maintain their cautious views leading up to the ANC`s national leadership elections in December. On the JSE, the Top40 traded up 0.1% and the All Share up 0.1%. In fixed income markets, the yield on benchmark government bonds rose by 0.5bps.

In US markets the dollar index, which tracks the greenback against a basket of six major currencies, fell by 0.2%. President Donald Trump confirmed that his decision on who will be the next chair of the US Federal Reserve is imminent. “It’s a big question for the markets. It’s one thing to speculate about it, but it’s another to take an FX position,” said Bart Wakabayashi, branch manager for State Street Bank in Tokyo (source: Reuters). Investors are also keeping a close eye on any new developments in the US tax reform proposed by President Donald Trump. The US dollar found support last week as a result of heightened expectations that Trump may get his tax reforms through after the Senate signed off on his budget, although analysts say it is a long road ahead. Any further positive news on tax reforms will provide the Dollar with a strong backdraught in the coming week. On the data front, the first estimates of US PMI for October will be released today. “These are likely to be of special interest because they will provide the first estimates of economic activity post-hurricane, and thus a gauge of the rebuilding efforts”, says Bernard Aw, Principle Economist at IHS Markit.

In European markets, the crisis in Spain entered yet another week with Madrid taking the unprecedented step of firing the government of Catalonia on Saturday in a last resort to thwart its push for independence. Catalan leaders called for civil disobedience in response. In Germany, the far-right Alternative (AfD) party is set to clash with other parties over its nomination for a senior parliamentary post when the Bundestag meets on Tuesday. The political tensions have weighed on the euro which hovered near two-week lows. The market is on edge ahead of a European Central Bank meeting on Thursday where it is expected to announce some form of policy tapering (source: Reuters).

Our range for the day : R13.82 – R 13.68