Daily Commentary - 29 August 2018

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

USD / ZAR 14.3963 - EUR / ZAR 16.7974 - GBP / ZAR 18.5356 -

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 appears slightly firmer and has been trading largely range-bound. However, a brief rally ensued yesterday along with a break below the USD/ZAR 14.00 handle following parliament`s withdrawal of the expropriation bill. The rand reversed its gains shortly afterwards as it came to light that the move was simply the following of procedure. Regardless, the spike highlights the premium that has already been priced in to compensate for uncertainty regarding the land reform debate. “If you wanted proof of how jittery investors are about South African ruling party plans to change the constitution to permit expropriation of land, look no further than Tuesday’s brief surge in the rand after a parliamentary committee announced it was withdrawing a bill on the issue” (source: Bloomberg). The situation in Turkey is still deteriorating and Moody`s has recently downgraded several Turkish financial institutions as downside risk builds, a development that puts further pressure on emerging market currencies and heightens contagion fears. In the immediate term, the US dollar will remain central to the rand`s direction and the rand could potentially benefit from the subdued risk-aversion. On the JSE, the Top 40 traded up 0.61% and the All Share up 0.64%

.

In the US market, the US and Mexico announced an overhaul of the North American Free Trade Agreement (NAFTA) earlier this week, easing fears and prompting risk-taking. The dollar index, which tracks the greenback against a basket of other major currencies, remained relatively flat after finding support from US consumer confidence figures. “The dollar inched higher on Wednesday after dipping to a four-week low overnight, but relief over a U.S-Mexico trade deal was dimmed by concerns that the China-U.S. trade war will drag on for some time” (source: Reuters). With money slowly moving away from safe-haven currencies, and the lack of volatility in major currency pairs, capped potential for gains could potentially drive more investors towards emerging markets.

In the European market, the euro is weighed down by Italian politics. The pound is also fragile as the probability of a no-deal Brexit becomes uncomfortably high as the deadline fast approaches. “The prospect of a no-deal Brexit is becoming increasingly feasible in the eyes of investors who are hedging against the risk of the currency” (source: Reuters).

Our range for the day : R14.1500 -R 14.4500