Daily Commentary - 28 September 2017

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

- USD / ZAR 13.5908 - EUR / ZAR 15.9888 - GBP / ZAR 18.1928 -

Economic Events:

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:

The Rand surrendered even more ground to the Dollar on the back of a climbing US rate hike rhetoric which has the probability of a US rate hike in December now above 80%.  The Rand, which started the week on the back foot lost another 1.5% against the Greenback yesterday. This morning, we are not fairing too much better where we have opened at 13.66, a level that we haven’t seen since the 9th of May.

On the local front, trade federation COSATU has turned up the heat in the fight against corruption with a nationwide strike that was held yesterday where far less protesters turned up than expected.  Meanwhile in the courts, a much more important development took place with a ruling that SA’s political parties must disclose the sources of their funding, however it could be some time before this ruling is put into practise as new laws need to be drafted.  Moodys has signalled that they will wait until after the 2018 ANC leadership conference before making any further changes to our credit ratings, which gives us a bit of breathing room.

The performance of emerging market currencies for the last five trading days, indicates that this Rand weakness is not isolated.  In fact, despite our nations immediate economic issues that we are facing, the Rand’s performance against the dollar is in the middle of the EM pack.  The Greenback has been surging the past couple of days due to Janet Yellen’s hawkish comments over the US economy being strong enough that the Fed no longer has to hike rates gradually.  Adding to the upbeat US economy rhetoric, Trump unveiled his market-friendly tax cut plans yesterday.  So after months of waiting and mass scepticism over whether anything will even come of it, Trump has released a tax reform blueprint that would slash corporate rates, provide relief for firms that repatriate cash from overseas and reduce the number of tax brackets from seven to three.  White House speaker Paul Ryan said it was “a once-in-a-lifetime opportunity that is all about more jobs, fairer taxes and bigger pay checks for American families.”  The bill will face a tough passage through congress as the plan’s affordability will be questioned with regards to the current $20 trillion debt backdrop.  As to this plan fitting in with Trump’s other plan, to weaken the Dollar in order to become more competitive in the export game – we will have to see.

US GDP Growth is due for release later today where a good figure has the potential to keep the Dollar’s rally firmly on track.

Our Range for the day: R13.4500 - R13.7500