Daily Commentary - 29 January 2018

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

- USD / ZAR 11.9392 - EUR / ZAR 14.8121 - GBP / ZAR 16.8567 -

Economic Events:

29 Jan : No data of real importance

30 Jan : SA Money Supply - EC Economic Confidence ; GDP - GE CPI - US Consumer Confidence ; Trump's State of the nation

31 Jan : EC CPI - SA Trade Balance  - US ADP Employment Change ; FOMC Rate Decision

01 Feb : US ISM Manufacturing

02 Feb : EC PPI - US Change in Nonfarm Payrolls ; Unemployment Rate

Market Commentary:

As this week sets off, the rand continues to build on its recent bout of strength as it steadily gains against other major currencies, advancing to levels last seen in the year 2015.  Although much of the recent strength has been attributed to the weaker US dollar, optimism surrounding Cyril Ramaphosa`s victory at the ANC`s elective conference in December and a boom in commodity prices remains present as some of the key drivers.  With Cyril Ramaphosa taking over the reins of the ANC, and President Jacob Zuma`s influence gradually diminishing, the newfound confidence in South Africa is clearly evident in the currency movements.  However, expectations will soon come to face reality as the SONA and budget presentations will be held in a few days.  With the widening budget deficit and rising debt levels still present, Cyril Ramaphosa might be unable to implement the much needed fiscal reforms.

Leading up to the World Economic Forum which took place over the past week,  the International Monetary Fund made the decision to cut South Africa`s 2018 GDP growth rate to 0.9%.  However, Cyril Ramaphosa reassured South Africans that his travels to Davos were very successful and that it delivered numerous investment commitments.  He also addressed  the nuclear power controversy and emphasised that it is not currently affordable for the South African economy.

In the US market, the dollar has been trading at its lowest levels in nearly three years.  The dollar index, which tracks the greenback against a basket of six major currencies, traded up slightly by 0.2%.  The dollar came under fire as US President Donald Trump accused the European Union of implementing unfair trade policies towards the US. ““The U.S. is reengaging with a weak dollar policy similarly to the 1994-95 period”, said Deutsche Bank strategist George Saravelos.  Yet traders expect more headwinds for the dollar, which has been pummelled by renewed worries that President Donald Trump may use currency policy as a tool to press other countries to get better “deals” on trade” (source: Reuters).  This week will provide the dollar with some direction as payrolls -, manufacturing - and inflation data gets released.

In the UK market, the British economy has been forging ahead after shaking off the effects of the Brexit vote.  Data released on Friday showed the fastest quarterly GDP growth of 0.4% in the last quarter of 2017.  Investors are betting that Britain could secure more favourable Brexit terms which would aid economic performance and could send the pound higher.  In the European markets, “the currency volatility comes at an especially sensitive time for the ECB as it prepares to remove stimulus after nearly three years and 2 trillion euros worth of asset buys.  The stimulus has rekindled inflation but a strong euro will weigh on import prices, putting downward pressure on inflation and raising fears the ECB may not be able to end its bond buys as quick as hoped.  Despite the currency’s strength, the euro zone economy is humming along and a key ECB survey published on Friday suggests that price growth could even be faster in the coming years than earlier thought” (source: Reuters).

Our Range for the day:  R11.8000 - R12.0000