Daily Commentary- 29 March 2018

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

- USD / ZAR 11.8145 - EUR / ZAR 14.5373 - GBP / ZAR 16.6011 -

Economic Events:

29 March : SA Money Supply ; PPI ;Trade Balance - UK GDP - US Initial Jobless Claims; University of Michigan Sentiment

30 March :  No data of real importance

Market Commentary:

The SARB cut rates by 25bp yesterday, mentioning an improved inflation outlook because of the stronger rand, the consumption-dampening second-round impact of tighter fiscal policy and reduced risks. However, without any ambiguity, the bank reiterated its desire to push inflation expectations down and towards the 4.5% mid-point, which suggests to us that there is little room for further rate cuts. Effectively, we feel that the SARB decision does not change our view that the cutting cycle has ended – especially given that the growth forecast has been upgraded to 1.7% in 2018, although the 2019 forecast has been trimmed down by a tenth, to 1.5%. 

The rand’s weakening response was expected as the rate cut reduces the carry returns. All the local factors: politics, ratings, rate decisions are now in the price, and we revert back to truly tracking global sentiment unless local economic growth surprises significantly to the upside. (Source – RMB)

On the currency, the MPC noted that its model assesses the ZAR to be “somewhat overvalued” at current levels and that “further strengthening potential is probably limited”. According to the MPC, the country’s negative output gap will close sustainably only from 2020. The SARB made no adjustments to its potential growth assumptions of 1.3% for 2018–19 and 1.4% in 2020.

It will be an agitated early end to the week in terms of the local data with a slew of hard macro releases, including money supply, PPI, the monthly budget and the trade balance. The latter will be of most immediate relevance for the ZAR and the market will be eyeing closely how much the latest figure recovers after Jan’s anomalous surging deficit. (Source – Investec)

The global equity markets have been led into the red by tech stocks again as Facebook’s founder is set to testify on data breaches. Equity markets were either in the red or at best flat on both sides of the Atlantic, which spilled into the local bourse. The JSE closed 2% down yesterday – and 8% down for the quarter, which marks the worst quarter in five years. This, despite the weaker rand and SARB interest-rate cut, which should boost equity markets due to their expected boost to consumption.  ( Source – RMB)

Our range for the day: R 11.6000 – R 11.8800