Daily Commentary - 27 February 2018 | Merchant West

Daily Commentary - 27 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 local front:

South Africa's new President, Cyril Ramaphosa, has unveiled a reshuffled cabinet that purges some of the most controversial of his predecessor's ministers while retaining others in a bid to build unity in a badly divided ruling party. The new cabinet shows the limits to Mr. Ramaphosa's power. "I have been conscious of the need to balance continuity and stability with the need for renewal, economic recovery and accelerated transformation," he said in a brief explanation of his cabinet choices. His new deputy president, David Mabuza, was a long time Zuma loyalist until he abruptly switched sides at the ANC leadership conference in December, helping Mr. Ramaphosa win a narrow victory over Mr. Zuma's preferred candidate.

Asian foreign exchange traders appeared torn between applauding and jeering the Cabinet appointments President Cyril Ramaphosa announced at 10pm on Monday. The initial reaction to the widely expected return of Nhlanhla Nene as finance minister and appointment of Pravin Gordhan as public enterprises minister saw the rand strengthen to R11.51 to the dollar. But as the market pondered the many compromises in Ramaphosa’s Cabinet — such as reshuffling Malusi Gigaba, Bathabile Dlamini and Nomvula Mokonyane instead of firing them, and appointing David Mabuza as deputy president and Bheki Cele as police minister — the rand weakened to R11.65/$.

The JSE looked set for a third trading day of gains on Tuesday, judging by Asian markets. Tokyo’s Nikkei 225 index was up 1.24%, Sydney’s ASX 200 was up 0.28% and Hong Kong’s Hang Seng index was up 0.14% ahead of the JSE’s opening.

The rand was trading at R11.57 to the dollar, R14.26 to the euro and R16.15 to the euro at 7am.

On the international Front

The Rand opened slightly on the back foot against most emerging market currencies, opening at around USD/ZAR 11.56.  Expectation is for the Rand to pull back again possibly below the 11.50 level. The expectation is supported by US Dollar weakness which was triggered by the decline in US new home sales which declined by 7.8%m/m (compared to expected rise of 3.5%).

Furthermore of interest today will be Jerome Powell’s first public comments since his appointment as Fed Chair. Markets should receive some guidance on this as it is widely believed that three interest rate hikes are already priced in for this year. Therefore any dovish remarks by Powell could aid toward further Dollar weakness.

On the international data front for Today, greater focus should be towards US Durable Goods orders (M/M) and US CB Consumer Confidence.   Also on the radar from the Eurozone is German Preliminary  CPI (Y/Y and M/M).

Our Range for the day: R11.5000 - R11.6500