Daily Commentary - 26 February 2018

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

- USD / ZAR 11.5644 - EUR / ZAR 14.2507 - GBP / ZAR 16.2430 -

Economic Events:

26 Feb : US New Home Sales

27 Feb : EC Consumer and Industrial Confidence - US Durable Goods

28 Feb :SA Money Supply ;PPI - US GDP

01 March : US Initial Jobless Claims ; ISM Manufacturing data

02 March : UK PMI ( Construction )  - EU PPI

Market Commentary:

On the International front:

Demand for the dollar continued to be supportive after the minutes of the Federal Reserve's January meeting underlined expectations for more aggressive monetary tightening this year. The meeting showed that policymakers gained confidence in the U.S economy, which aided their plans to continue raising short-term interest rates as soon as next month, and talks of 3-4 hikes for this year.Powell’s Testimony later today is some of the key event risk this week.

The greenback dropped to 1.2332 against the euro (previous 1.2280) and opened at a five-day low of 1.4027 against the pound.

Market Factors to what this week:

German CPI – Inflation data will be closely watched in the midst of speculation over how soon the ECB will start unwinding its stimulus program.

US GDP – According to Investec, expectations are for a downside revision as items like retail sales were lowered for the year-end months, should keep growth at 2.5% (y/y)

On the local front:

South Africa's rand hit a fresh three-year high against a weaker dollar in early trade on Monday, amid talk that President Cyril Ramaphosa is likely to announce a new cabinet this week. At 08H27 local time, the rand ZAR=D3 was at 11.5300 per dollar, 0.11 percent firmer than its New York close on Friday. The currency hit 11.5100/dollar earlier in the session, its firmest since February 2015. Ramaphosa has said he is considering a cabinet reshuffle after replacing former leader Jacob Zuma. The former president's nine-year rule was marred by a series of scandals. Ramaphosa has pledged to fight official corruption. (Reuters)

Although a reshuffle will present Ramaphosa with the opportunity to remove inefficient ministers, expectations are that he will proceed cautiously, as the newly-elected president seeks to consolidate his authority in the ANC and the government. The local currency also continued to find support from the easing of fears of further downgrades of SA’s sovereign debt rating. On Thursday, the Treasury said all three major global ratings agencies had given positive feedback on the tabling of the budget earlier this week. Nedbank Corporate and Investment Banking analysts said they expect the rand to hit R11.30/$ following Wednesday’s budget. Over the short-term rand weakness on the approach to 12/$ could fade in the first quarter of 2018, but the rand was expected to trade closer to R12.50–R13/$ at the end of 2018, Nedbank said.

At 3pm on Friday the rand was at R11.5744 to the dollar from R11.6558, at R14.234 to the euro from R14.3736 and at R16.1924 to the pound from R16.2642. The euro was at $1.2298 from $1.2331. (Business Day)

Our range for the day : R11. 5000 -R 11.6500