Daily Commentary - 28 September 2018

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

USD / ZAR 14.1629 - EUR / ZAR 16.4508 - GBP / ZAR 18.5035 -

Economic Events:

27 September: EC Consumer Confidence - SA PPI Data - US GDP ;Initial Jobless Claims

28 September: EC CPI Data - SA Trade Balance - US University of Michigan Sentiment

Market Commentary:

South Africa's rand firmed on Thursday, brushing off a rate increase by the U.S. Federal Reserve, with traders continuing to see carry potential in the unit. The bourse was weighed down by gold stocks for a second session, as prices for the precious metal took a hit from a surging dollar. At 17h00 the rand was 0.73 percent firmer at 14.0525 per dollar compared to a close of 14.1325 overnight. The rand defied expectations it would see some selling pressure in the wake of another U.S. rate rise, suffering modest profit-taking in early trade before resuming a rally that has lifted it to a near one-month best.

Last Thursday the South African central bank struck a hawkish tone when it narrowly decided to hold benchmark rates steady, spurring forward markets to up bets on policy-tightening in the near term and investors to see yield-carry potential in the unit. "It was a little surprising to see the rand appreciating, especially as there were some technical signals pointing to the possibility USDZAR might bounce higher," analysts at Investec said in a note, adding improved policy certainty was supporting demand.

Traders said the rand was now poised to test the 13.95 level as the technical picture turned positive. Trade on Friday is set to be impacted by the release of budget and trade figures. Bonds were firmer, with the yield on the government bond due in 2026 down 8 basis points to 8.99 percent. The blue-chip top-40 index closed down 1.11 percent at 49,800 points, and the All-share index fell 1.03 percent to 55,988 points.

International front - The dollar stood tall against its peers on Friday, hovering near a nine-month high versus the yen, after data reinforced upbeat views about the U.S. economy and backed the Federal Reserve’s signal for a steady course of rate increases over the next year. U.S. gross domestic product grew at a 4.2 percent clip in the second quarter, the fastest in nearly four years, according to government data on Thursday. Another report showed durable goods rose 4.5 percent in August, rebounding from a revised 1.2 percent drop the month before. The dollar traded at 113.395 yen JPY= after gaining roughly 0.6 percent overnight to 113.47, its highest since December 2017.

The decline in U.S. Treasury yields slowed in the wake of the upbeat data, underpinning the dollar. Yields had declined sharply after the Federal Reserve tightened monetary policy on Wednesday and stuck to its intention of hiking interest rates at a steady pace. “The broad rally by the dollar has also been helped by seasonal factors, as it has coincided with U.S. investors bringing funds back home for the month’s end,” said Yukio Ishizuki, senior forex strategist at Daiwa Securities in Tokyo. “The dollar looks well placed to gain particularly against the yen, with the U.S.-Japan summit over for now and with interest rate differentials between the two countries continuing to widen.”

The euro was a shade lower at 1.1636 against the greenback, firmly on the back foot after slumping almost 0.9 percent overnight. The single currency was hit by concerns around heavily-indebted Italy’s handling of its budget. Italy on Thursday set its budget deficit target at 2.4 percent of gross domestic product for the next three years, defying Brussels and marking a victory for party chiefs over economy minister Giovanni Tria, who had pushed for a deficit below 2 percent. The euro has lost more than 0.9 percent this week, having pulled back from a 3-1/2-month high of $1.1815 scaled on Monday after European Central Bank chief Mario Draghi said he sees a vigorous pickup in euro zone inflation. The single currency has been on an uptrend in the last few weeks, bolstered by generally solid European economic data.

Our range for the day : R14.0000 - R14.3000