Daily Commentary - 27 September 2017

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

- USD / ZAR 13.4722 - EUR / ZAR 15.8305 - GBP / ZAR 18.0383 -

Economic Events:

27-Sep: US Durable Goods Orders ; Pending Home Sales

28-Sep: EC Economic Confidence -SA PPI - US GDP ;Jobless Claims

29-Sep: EC CPI - SA Trade Balance - US Univ. of Michigan Sentiment

Market Commentary:

After ending on the front foot last week, the Rand has shifted to the back foot on Tuesday weakening to a low of over 13.40 against the Greenback.  Comments from North Korea’s foreign minister Ri Yong Ho has triggered an even more substantial run to safe haven assets. Gold has been sent above $1310 while the Japanese Yen has soared to over 112.65 per USD, however TreasuryOne commented that “the rally in the Yen is confusing, as their proximity to North Korea and stance in favour of the US puts them at direct risk.”

A tumultuous day is forecast for South Africa as COSATU is due to hold country-wide marches to protest against state capture and corruption. The recent controversy over the proposal for the Finance Ministry to raid the PIC of up to R100 Billion in funds in order to bail out struggling state-owned enterprises has channelled COSATU’s anger with them saying it will “resist any attempt by government to deploy its member’s pension savings.” The costs of the state capture rot that has spread through the SA’s institutional base and was a majority contributor to our economy dropping into a recession has made SA slump 14 places in the World Economic Forums Global Competitiveness Index. It just shows how far the SA economy has slipped in a very short space of time. The SARB published its leading indicator posting a strong improvement in July of 1.5% m/m to its highest level since February.

The main reason, however, for the Rand’s inability to gain any traction in the short term is due to the Greenbacks strong surge. The safe haven play is in full effect as tensions between the US and North Korea continue to escalate. This puts most EM currencies vulnerable, especially for the Rand as we have negative news events to contend with. The 13.40 level still holds some resistance, however another break of this level is very much on the cards today.

Last night, Fed chair, Janet Yellen’s first remarks since the FOMC had a touch of hawkishness to them which helps the Greenback. However her comments still give the market a lot of room to play with when it comes to projecting the long-term outlook. Now 6 FOMC members thus far have signalled for a rate hike in December which puts the probability of a hike at 80%.

The Euro has also been hit hard and is currently trading around the 1.1750 level, the weakest it’s been in a month. This is due to investors worrying about the difficulties that Angela Merkel is due to face in putting together a government coalition in Germany and the implications for the rest of Europe. It’s important to note that many investors are still expecting the ECB to trim stimulus in two weeks’ time.

Range Today – 13.52 to 13.35