Daily Commentary - 30 January 2018

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

- USD / ZAR 12.0292 - EUR / ZAR 14.8645 - GBP / ZAR 16.8743 -

Economic Events:

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:

Over the last few trading days, the rand has been the majority benefactor of the “Ramaphosa effect” and the weaker US dollar. Following Cyril Ramaphosa`s victory at the ANC elective conference in December, the rand strengthened to become one of the best-performing currencies in the world. Markets participants highly favoured a win by Cyril Ramaphosa due to his potential to clamp down on corrupt practices and steer the local economy down a new path, and their sentiments were largely responsible for buying the rand below the USD/ZAR 12.00 handle. The weaker dollar also contributed to the bullish approach to emerging market investing. However on Monday, the rand weakened as the US dollar regained some traction. The political front also caused some uncertainty as it emerged that a parliamentary sub-committee will meet on Tuesday to finalise the process of impeaching a president, which could draw some resistance from the Zuma-camp. Market participants also brace as Eskom`s financial results are expected today, which will undoubtedly attract the scrutiny of the ratings agencies.

In the US market, the dollar spent the majority of the new year suffering from an accelerated sell-off down to a three-year low against other major currencies. On Monday, the recent dollar weakness came to a halt as traders wait for the next US Federal Reserve meeting to release clues into the market regarding the US` interest rate trajectory. “The Fed is widely expected to keep interest rates unchanged at its two-day policy meeting that starts on Tuesday. Investors, however, will be focussing on the central bank’s assessment of the economy and inflation for hints on the monetary policy outlook” (source: Reuters). Despite the dollar regaining traction, it still holds some room to weaken from a valuation point of view, which could remain the case for months to come.

In the European markets, the euro continues to strengthen following comments from Mario Draghi, President of the European Central Bank. “The euro jumped past $1.25 for the first time in over three years after the ECB appeared to be more relaxed about the currency’s recent appreciation than many market participants expected,” said ETX Capital analyst Neil Wilson (source: Moneyweb). “The euro is enjoying its best start to a year ever, and the momentum that has taken it above $1.25 is encouraging hedge funds and speculators to add to these bets, not reduce them” (source: Reuters).

In other news, Eskom has been downgraded by Moody`s ratings agency, despite its recent board change.

Our range for the day : R11.9000- R12.1000