Daily Commentary - 28 August 2018

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

USD / ZAR 14.1613 - EUR / ZAR 16.5553 - GBP / ZAR 18.2651 -

Economic Events:

28 August: US Advanced Goods Trade Balance - EC Money Supply

29 August:GE Consumer Confidence -US Pending Home Sales ;GDP

30 August: SA Money Supply; PPI; SA Budget -GE Unemployment Change - EC Economic Confidence -GE CPI- US Initial Jobless Claims

31 August  : CH Manufacturing PMI - EC Unemployment rate - SA Trade Balance

Market Commentary:

The rand weakened yesterday before retracing losses during afternoon trade. Recent events, both locally and internationally, have generated remarkable volatility in the local currency that is likely to persist in the short-term. In the absence of any significant data releases today on the local front, and relative quiet from the political arena, the rand will once again increase its exposure to international headlines. Although the weaker US dollar has helped the rand to make up some ground yesterday, the outlook remains cautious as unclear land reform policies and the threat of US sanctions loom in the background. However, despite the continually growing divide between global financial markets and the toll that risk aversion has taken on emerging market economies, the rand still remains one of the more liquid currencies with favourable prospects. Substantial change faces the South African economy and investors are eagerly awaiting certainty. Market participants will closely monitor money supply, trade balance and budget data due later this week. On the JSE, the Top 40 traded up 1.54% and the All Share up 1.46%.

In the US market, “The dollar was steady against the euro and a basket of major currencies after the United States and Mexico agreed to overhaul the North American Free Trade Agreement, boosting optimism for an easing of global trade tensions” (source: Reuters). The dollar jumped to its highest level during mid-August in nearly a year following US President Donald Trump`s criticism on the Federal Reserve`s interest rate policy, an unprecedented move for the presidential office. The dollar has since retreated and the dollar index, which tracks the greenback against a basket of other major currencies, improved marginally from a very weak base. The dollar weakness has stimulated appetite for riskier assets, which in turn relieved some of the pressure on emerging currencies. However, considering the turmoil in international markets, the escalating tensions between major economies and heightened fears of contagion, the dollar strength could be far from over as it remains a favourite safe-haven destination.

In the European markets, Brexit remains the dominant theme. “The pound slid against the euro to its weakest since mid-September, hurt by a rally in the single currency and concerns about whether Britain can secure a post-Brexit trade deal with the European Union” (source: Reuters). The Turkish Finance Minister also seeks to improve ties with their European counterparts as tension between the US and Turkey escalates, a development that will be closely followed.

In other news, President Cyril Ramaphosa will host UK Prime Minister Theresa May in Cape Town today. “She is expected to travel to three African nations this week, seeking to emphasise the trading opportunities open to the UK as it leaves the European Union” (source: News24).

Our range for the day : R14.1000 - R 14.3800