Daily Commentary - 25 October 2017 | Merchant West

Daily Commentary - 25 October 2017

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

- USD / ZAR 13.7327 - EUR / ZAR 16.1558 - GBP / ZAR 18.0280 -

Economic Events:

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:

Yesterday the rand regained a tiny bit of traction following high volatility in the week before. Political uncertainty weighed heavily on investors` nerves as President Jacob Zuma surprised the market with yet another cabinet reshuffle and rumours surrounding Deputy President Cyril Ramaphosa`s future started to surface. Since the office of the president denied these rumours, markets have shifted their focus to the medium-term budget that will be tabled today. Today`s budget speech will be a first for newly appointed Finance Minister, Malusi Gigaba. “We expect a terrible budget — simply put, there are no more rabbits to pull out of the hat,” Rand Merchant Bank analysts John Cairns and Isaah Mhlanga wrote in a note (source: Moneyweb). Investors will closely monitor the proceedings to find clues on how Malusi Gigaba plans to spur growth and cut spending, given the large tax collection shortfall. Ratings agencies will also be tuning in to see how National Treasury plans to deal with the struggling state-owned companies. In a brief overview, South Africa recently emerged from a technical recession, the second in less than a decade. The slow growth figures, coupled with a sharp decline in business confidence, has provided significant resistance for job creation, welfare and redistribution plans, and could make it nearly impossible for government to crack down on the budget gap. Slow GDP growth is hampering the state’s ability to meet its revenue targets and the tax shortfall for the current fiscal year could be the largest in eight years, according to a Bloomberg survey. On the JSE, the Top40 traded up 0.24%. In fixed income markets, the benchmark yield dropped 1bps.

In the US, the dollar index, which tracks the greenback against a basket of six major currencies, has been trading close to a one-month high. The US dollar itself has been hovering around three-month highs as investors start to narrow down the potential candidate who will become the next Chair of the US Federal Reserve. According to reports, the Republican party strongly favours the Stanford University economist John Taylor as Janet Yellen`s replacement, as opposed to the current governor of the Federal Reserve, Jerome Powell. President Donald Trump also stated that the reappointment of the current Chair, Janet Yellen, is not off the table. One of the reasons why John Taylor may be favoured is because of his rules-based approach to setting interest rates, which could accelerate future interest rate increases in the US. The more hawkish view that he maintains could signal near term gains in the US dollar, with markets already starting to price this factor in. On the fiscal front, the likelihood of President Donald Trump`s proposed tax overhaul started to fade as three GOP senators withdrew their support of the bill. (Source: Reuters)

In the European markets, the market remained steady ahead of the European Central Bank`s policy meeting on Thursday. Investors are trying to time the cut-back of bond purchases by the European Central Bank. According to a Reuters poll of economists, the ECB is expected to announce on 26th Oct. that it will start trimming its monthly asset purchases to 40 billion euros from 60 billion euros in January. The economists were split on how long the ECB will prolong the programme beyond December when the current one expires and there was no clear view on whether or not it would leave the programme open-ended. (Source: Reuters)

Our Range for the Day  (prior the 14h00 Budget Speech) :-    13.65   -  13.80