Daily Commentary - 28 March 2018 | Merchant West

Daily Commentary - 28 March 2018

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

- USD / ZAR 11.7029 - EUR / ZAR 14.5211 - GBP / ZAR 16.5847 -

Economic Events:

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:

A busy day today in terms of events and data. Locally we will have our MPC Meeting then in the States we see the U.S. fourth quarter GDP and home sales data out which will provide direction for the greenback. There is no doubt that we will see a fair amount of activity in the markets both before and after the announcements and today might well be the day that sees the present range breaking  - but to which side ?

Since Moody’s much desired announcement Friday evening the Rand has been doing rather well having broken 11.76 and has now been trading in a tight brand of 11.61 to 11.71. Most trader aren’t willing to gamble too aggressively on which side of this range will break next and although the undertone is perhaps still leaning ever so slightly in favour of the Rand bulls and for us to perhaps once again test that magic 11.50 level, we do suspect that it will have to take more than just the MPC outcome but will also need us seeing U.S. 4Q GDP figures.

Yesterday saw the Dollar stall a little as global risk appetite receded on elevated global trade tensions, driven by news that the U.S. President may join forces with the EU’s biggest economy, Germany, to counter China’s economic practices. This saw the dollar index, a measure of the greenback against majors, dip 0.1% to 89.291. The Euro was 0.15% firmer against the USD at $1.2419, with the Sterling gaining as much as 0.25% to $1.4190after half a percent drop in Monday’s session.

The Rand as well as many of the other EM Currencies also performed admirably against the dollar, but again wasn’t able to break 11.61, each time this level was tested it had to surrender these gains, as traders weren’t willing to push us through pre-MPC announcement and U.S. GDP, and must highlight that with the U.S. labour growth things may indeed be a bit more Dollar positive than our local Importers may like.

The general consensus is to see our Reserve Bank Governor cutting the repo rate this afternoon by 25basis point, this should really have happened in the last meeting but the MPC was nervous about the Rating Agencies, and now that Moody’s decision is done, we again escaped the long-feared credit ratings downgrade, the majority of local economists are expecting Lesetja Kganyago to drop the Banks’ borrowing rate to try and promote further growth.

This will of course only narrow the Rand’s yield advantage it currently has over the Dollar, we really need to start asking those age old questions as to where the line in the sand is in respect to off-shore investor feeling that the Rand yield offered isn’t enough to off-set the currency risk. We’d argue that we aren’t quite there yet  and even with the FED hiking cycle and the SARB cutting, we still feel these sort of fears aren’t quite yet at the front end of the foreign investors’ mind and with the recovery of South African market over the 1st Quarter of 2018 chances are still strong to see inflows increase with player backing the promise of the future rather than the down side turn on the short-term yield over a mere 0.25% drop in returns.

Our Range for the Day  :-    11.51    -    11.80