Daily Commentary – 26 November 2018

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

USD / ZAR 13.7676 | EUR / ZAR 15.64118 | GBP / ZAR 17.6603 |

Economic Events:

26 November : No Data of real importance

27 November: US House Price Index

28 November: SA BER Consumer Confidence | US MBA Mortgage Applications ;GDP Data ;Core PCE

29 November: SA PPI Data | EC Consumer Confidence | US Initial Jobless Claims ;FOMC Meeting Minutes

30 November: CH Manufacturing PMI | EC CPI Data | SA Trade Balance | Budget

Market Commentary:

South Africa – South Africa’s rand firmed against the dollar in early trade on Monday, even though risk sentiment remained fragile as investors looked to the G20 meeting this week for signs of a thaw in the Sino-U.S. trade spat. At 08h21, the rand traded at 13.8150 per dollar, 0.31 percent firmer than its close on Friday.

S&P Global Ratings left South Africa’s foreign-currency and local-currency credit ratings unchanged on Friday, citing weak economic growth and a rising debt burden as reasons for keeping the country in “junk” status. South African President Cyril Ramaphosa has been at pains to rekindle growth and win over foreign investors since taking office in February. But he has been hampered by infighting in the ruling African National Congress and severe fiscal constraints after a decade of stagnation marred by policy uncertainty and corruption scandals.

“Anaemic economic growth in 2018 and sizable contingent liabilities continue to weigh on South Africa’s fiscal prospects and debt burden,” S&P said in a statement. “Nevertheless, the new government is pursuing a series of economic reforms that should help boost the economy from 2019 onward, despite structural impediments, chronic skills shortages and high unemployment.. “S&P kept South Africa’s long-term foreign-currency rating at ‘BB’, while the long-term local-currency rating stayed at ‘BB+’. The ratings have a “stable” outlook. The finance ministry said S&P’s ratings decision gave the country “a chance to demonstrate further concrete implementation of measures that are aimed at turning around the growth trajectory”.

S&P downgraded South Africa last year following a sharp deterioration in the country’s public finances under former President Jacob Zuma. Commenting on ANC plans to change the constitution to allow for land expropriation without compensation, S&P said on Friday that it expected “the rule of law and enforcement of contracts will largely remain in place and will not significantly hamper investment levels in South Africa”. It added that it could lower its ratings if it observed a continued fiscal deterioration, or if the rule of law or property rights were to weaken significantly. The ratings could be raised if economic growth or fiscal outcomes strengthened in a sustained manner.

International front – The dollar held broad gains on Monday as investors sought shelter in the world’s most liquid currency on fears of a slowdown in global economic growth and as U.S.-Sino trade tensions sapped risk appetite. The greenback, considered a safe haven currency, advanced as last week’s capitulation in oil prices raised investor concerns that the global economic recovery was losing steam.

The British pound changed hands at 1.2804 against the greenback, declining 0.05 percent versus the dollar. European Union leaders sealed a Brexit pact on Sunday calling it the “best possible” deal that Britain could have achieved. A vote in the British parliament is expected to take place just before the next EU summit on Dec. 13-14 and most analysts expect sterling to remain subdued until then. With Brexit issues apparently settled in the immediate-term, currency traders are looking to the upcoming G20 meeting in Buenos Aires on Nov. 30, where U.S. President Donald Trump and Chinese President Xi Jinping are expected to discuss contentious trade matters.

Investors are looking to see if a workable deal can come out of the summit. Outside of such an agreement, Washington is looking to raise its 10 percent tariff on $200 billion of Chinese imports to 25 percent by early next year. Trump has also threatened to impose tariffs on all remaining Chinese imports – about $267 billion in goods – if Beijing fails to address U.S. demands on trade.OCBC analysts say markets are closely monitoring whether China can convince Washington to postpone the tariff hike to 25 percent from the planned January timeframe, which would allow room for negotiation. Such a postponement may support market sentiment.

The euro traded marginally lower at 1.1335. The single currency lost 0.7 percent versus the greenback last week on weak economic data out of the common area. The ongoing tussle between Rome and Brussels over Italy’s free-spending budget, which breaks the European Commission’s fiscal rules, has also put the euro under pressure. However, Italian Deputy Prime Minister Matteo Salvini hinted on Sunday at the possibility of tweaking the country’s deficit goal for next year, a move that could open talks between Rome and Brussels to avoid a disciplinary procedure against Italy. There will be increased focus on European Central Bank President Mario Draghi’s appearance at the European parliament on Monday, with markets expecting him to take dovish tone given the weakness in recent economic data. “The ECB’s quantitative easing programme is set to finish up next month and we think the hurdle to extend the programme is exceptionally high,” Nick Smyth, interest rate strategist at BNZ Markets, said in a note.

Our Range for today: R13.7000 – R13.9000