Daily Commentary – 26 October 2018

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

USD / ZAR 14.5961 - EUR / ZAR 16.6100 - GBP / ZAR 18.7093 -

Economic Events:

26 October: US GDP and University of Michigan Sentiment

Market Commentary:

The rand reversed earlier gains and was weaker against the dollar on Thursday afternoon, tracking a softer euro, which fell after the European Central Bank (ECB) kept its rates on hold. The rand and local bonds have weakened significantly since the medium-term budget policy statement was presented on Wednesday, although the government's plans to stimulate growth and tackle fiscal challenges have drawn praise. The rand opened the trading session at 14.6190 having reached an earlier high of 14.6770.

One of the biggest concerns for ratings agencies and markets is the fact that the budget deficit is expected to remain between 4% and 4.4% of GDP, said Peregrine Treasury Solutions' Bianca Botes. “With global interest rates on the rise, government’s growing debt burden threatens to cripple the fiscus, allowing less room for expenditure on key structural economic transformation measures,” she said. Fitch affirmed its BB+ assessment of SA’s debt, with a stable outlook, in June.

Global focus was on the ECB, which earlier announced it would keep interest rates on hold, and was pressing ahead with plans to phase out its monetary stimulus programmed this year. This was despite mounting risks, including Brexit and conflict over the Italian budget. The JSE followed global markets, with the all share shedding more than 1% as global challenges kept investors on the edge. Heavy losses in Asia put global stocks firmly on course for their worst month since the financial crisis with Wall Street suffering its worst day on Wednesday since 2011. (Businesslive).

Range for the day: 14.4500 – 14.7500