Daily Commentary - 28 November 2017 | Merchant West

Daily Commentary - 28 November 2017

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

- USD / ZAR 13.7531 - EUR / ZAR 16.3621 - GBP / ZAR 18.3303 -

Economic Events:

28-Nov : No Data of real importance

29-Nov : EC Business Confidence - US GDP

30-Nov : SA PPI and Balance of Trade - US Initial Jobless Claims

01 Dec : SA New Vehicle Sales - EC Markit Manufacturing PMI - US ISM Manufacturing PMI

Market Commentary:

The Rand strengthened almost 40 cents yesterday after Zuma, in response to the downgrade, directed Fin Min Gigaba, the National Treasury and the new “Presidential Fiscal Committee” to find ways to cut expenditure and boost tax revenue to the tune of R40bn in order to plug the widening debt to GDP gap that was revealed in the MTBPS.  However with Zuma saying that they also need to find a way to fund fee-free higher education in a fiscally sustainable manner just means that the initial R40bn figure will most probably be revised upward in the coming months.  Frictions between the government and public sector unions during wage negotiations are amplifying with the talks now entering their third month and the government is still to make a counter offer.  The Unions are now proposing a strike if they do not have a response by the 7th of December.

The Rand managed to outpace its EM peers with a near 3% rally, plunging the USDZAR pair back below the 50 DMA and the 13.80 support level.  The pair opens today at 13.73 with the next move most probably swaying on the print of SA Business Confidence Index today at noon.  As a leading indicator of private sector fixed investment spend, it’s an important figure to watch.  A print below 50 indicates overall pessimism.  Given the recent, somewhat surprising recovery in the manufacturing sector, the print for this subsector, which registered just 27 in Q3 will be especially interesting to observers.  Demand for local bonds have also gone through the roof as the global hunt for high yields outweigh our downgrade in an environment of persistently low interest rates and stubbornly low inflation.  Our 10 year R186 Government bond strengthened from a high of 9.445% to 9.20%, helping the rand achieve its gains.

In the US the senate plans to vote on its tax reform bill later this week which poses substantial event risk.  There is currently only a slim majority to pass the reform bill and it will only take 3 Republican rebels to tank the vote.  The second reading of US GDP for Q3 is out later this week with expectations of an upward revision of 3.2% to come due to the recent strong performance in consumer spending and increased investment pumps up optimism in the US economy.

Our Range for the day:  R13.6000 - R13.8000