Daily Commentary - 30 August 2017

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

- USD / ZAR 13.0356 - EUR / ZAR 15.5788 - GBP / ZAR 16.8477 -

Economic Events:

30-August: EC Economic Confidence - US ADP Employment Change ; GDP

31-August: EC CPI Estimate - SA PPI ; Trade Balance - US Initial Jobless Claims ;Pending Home Sales

01-Sep: EC Manufacturing PMI - SA Manufacturing PMI -US Change in Nonfarm Payrolls;ISM Manufacturing ; University of Michigan Confidence

Market Commentary:

South Africa's rand fell slightly against the dollar early on Wednesday, giving up gains from the previous session, after data showed private sector credit demand growth slowed in July.  At 08h45, the rand traded at 13.0100 per dollar, 0.17 percent weaker than its New York close on Tuesday.  The rand on Tuesday broke past the critical 13.0000 level to touch its strongest level in about four weeks as it recovered from concerns about North Korea's missile launch.  Investec note: Technically, the break below 13.0000 was significant and raises the prospect of a test of 12.8800.  This will be the next significant support level, which if broken will open up the currency pair to trade significantly lower in the weeks that follow and possibly trade as low as the 12.60s.

The dollar pulled away from the previous session's 4-1/2 month lows against the yen on Wednesday as investors' concerns over North Korea's latest missile test eased for now, while the Australian dollar surged on upbeat construction data.  The dollar index, which tracks the greenback's value against a basket of six major currencies, added 0.1 percent to 92.292, having recovered from Tuesday's low of 91.621, its lowest level since January 2015.  "The dollar/yen reacted yesterday, moving lower, and that seems to be reversing today," said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.

The greenback later recovered, with U.S. equities rising on Tuesday and the U.S. 10-year Treasury yield pulling up from 9-month lows.  The U.S. 10-year Treasury yield last stood at 2.148 percent.  On Tuesday, the U.S. 10-year bond yield fell as low as 2.086 percent, its lowest level since Nov. 10.  While North Korea-related risks haven't gone away, the fact that the dollar managed to bounce back sharply from Tuesday's lows could lend support to the greenback in the near term, said Andrew Bresler, deputy head of sales trading in Asia-Pacific for Saxo Markets in Singapore.  "We've certainly remained pretty cautious on the outlook for risk here, and definitely not buying fully into the discounting of the North Korean tensions," he said.

Friday's closely-watched U.S. employment report for August is expected to show employers added 182,000 jobs, according to the median estimate of 60 economists polled by Reuters.  Investors are also gauging the potential economic fallout of Tropical Storm Harvey, which brought catastrophic flooding to Texas this week and shut down nearly a fifth of the U.S's crude oil refining capacity.  The euro edged up 0.1 percent to 1.1981 against the greenback, having retreated from Tuesday's high of 1.2070, its strongest level since January 2015.

 

International data front:

U.S consumer confidence surged to a five-month high in August as households grew increasingly upbeat about the labor market while house prices rose further in June, suggesting a recent acceleration in consumer spending was likely to be sustained.  The data on Tuesday also supported views that economic growth would accelerate in the second half of the year after a sluggish performance earlier.  "Despite a daily dose of worrying headlines, consumers still have plenty to be confident about right now.  Home prices are rising, stocks are just off record highs and the labor market is churning out jobs," said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto.  "That should continue to support solid consumer spending growth through the rest of the year.  "The Conference Board said its consumer confidence index increased to a reading of 122.9 this month from 120.0 in July.  That was the strongest reading since March when the index hit a 16-year high of 124.9.  August was also the second highest reading since 2000 (Reuters).

Range on the day: 12.98 - 13.10