Daily Commentary - 27 March 2018

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

- USD / ZAR 11.6437 - EUR / ZAR 14.5175 - GBP / ZAR 16.5468 -

Economic Events:

27 March : EC Economic Confidence - US Consumer Confidence

28 March : US MBA Mortgage Applications ; GDP - SA SARB Interest Rate Announcement

29 March : SA Money Supply ; PPI ;Trade Balance - UK GDP - US Initial Jobless Claims; University of Michigan Sentiment

30 March :  No data of real importance

Market Commentary:

The local markets gathered after Moody’s stable outlook surprise on Friday night.  The rand trended down and botched at 11.61 to the greenback before giving away three-cents overnight.  It is said that it needs to break this level before it can move towards 11.50, the previous support level.  The benchmark 10-year bond bid yield declined to 7.913%, the lowest since late 2015.  It is also believed that most of the good local news is priced in at these levels and the trend will be driven by global risk appetite and further evidence of domestic reforms that can lift potential growth.  However, should the global environment return to a full-on risk-on trade, there is more room for further improvement as international clients remained neutral and slightly overweight SA assets.  More so, they have turned bullish SA relative to other emerging markets, and will be tempted to buy SA because of the promise of reforms. (Source: RMB)

With regard to the local political front, former president Zuma was served with an order to appear before court on April 6 to face the re-instated corruption charges.  Zuma remains committed on fighting them and could apply for a higher court for an indefinite suspension of the charges to review whether he can be given a fair trial.  Whatever happens, the issue is set to drag out for some time to come.  While it won’t likely have much influence for financial markets, it will have effect on the local political economy beyond the potential for it to influence internal ANC dynamics and shape public opinion ahead of the election next year.  Note that the NEC resolved for a national summit on land expropriation should be held on April 21-23 to discuss the issue, which will present fresh headline risk for the market to contend with.  (Source: Investec)

Internationally US equities finished abruptly higher on Monday as the markets recovered some of last week’s losses.  Both major indexes saw their biggest 1-day jump since August 2015, with the Dow Jones up 2.84% and S&P 500 increasing by 2.72%.  The stock market recovery was prompted by indications that trade tensions were beginning to ease amidst reports that the US and China are conducting behind-the-scenes talks to avoid a global trade war.  The VIX index dropped 15.44% on Monday to 21.03, however, the index is still up significantly since the start of the year and a further withdrawal is required to signal an ongoing recovery in risk appetite.  European equities meanwhile ended with losses on Monday in part due to a strengthening euro.

The euro was spurred higher by comments from German central bank chief Weidmann that the European Central Bank should slow its crisis-fighting policies of extremely low interest rates and large bond purchases.  Asian equities are trading higher ahead of the European open, with the Nikkei up 2.31% at the time of writing and the Shanghai Composite Index up just under 1%.

On the data front for today, the US consumer confidence index is in the spotlight in the NY session, while Eurozone money supply and consumer confidence will be released this morning. ( Source : Absa)

Our Range for the day: R11.5500 – R 11.8000