Daily Commentary – 27 November2018

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

USD / ZAR 13.8746 | EUR / ZAR 15.7270 | GBP / ZAR 17.7628 |

Economic Events:

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:

Local front – South Africa’s rand firmed slightly against a softer dollar on Monday, in line with emerging markets, as focus remained on clues on the U.S. Federal Reserve’s 2019 hiking cycle and the high-stakes meeting between the leaders of China and the U.S.Stocks were firmer along with other emerging markets on the back of improved sentiment.

At 17h00, the rand traded at 13.8500 per dollar, 0.05 percent firmer, having closed on Friday at 13.8575The rand remains under pressure ahead of the speech by the U.S. Federal Reserve Chairman Jerome Powell and policy-meeting minutes that may give clues on the 2019 rates, as a hike is expected in December. At a G20 meeting in Buenos Aires on Nov. 30, U.S. President Donald Trump and Chinese President Xi Jinping are expected to discuss contentious trade matters which would have an impact on currencies, ahead of the next scheduled escalation in tariff hikes. The rand hit a three-month high after S&P Global Ratings kept its foreign and local currency ratings unchanged late on Friday, with a “stable” outlook. Bonds were weaker, with the yield on the benchmark 2026 government bond up 2.5 basis points to 8.960 percent.

“A lot of relatively small things have happened in the past week which have improved sentiment but the biggest one is that the market hopes Donald Trump and China will come to a deal on Friday” said Wayne McCurrie, FNB Wealth and Investments portfolio manager. Trump and Xi are expected to meet on the sidelines of a G20 summit in Argentina at the end of this week.

Retailer Pepkor Holdings Ltd, formerly Steinhoff Africa Retail, has been fined five million rand by the Johannesburg Stock Exchange (JSE) for breaching listing requirements including loans to directors or key management personnel in its pre-listing statement and 2017 financial results. “This is actually quite serious and I have never seen this happen before. The fine is nothing but what the JSE is saying is that they lied in their prospectus and did not disclose material information. They might be lining themselves up for future legal action from irate shareholders,” McCurrie said.

International front – The dollar held steady on Tuesday as fresh concerns about the Sino-U.S. trade war lent support to safe haven currencies, although moves were tempered as investors await possible cues from the Federal Reserve about policy direction. Weighing on global risk sentiment were comments from U.S. President Donald Trump on Monday that seemed to hose down hopes of a trade truce with China. In an interview with the Wall Street Journal, Trump said he expects to move ahead with raising tariffs on $200 billion in Chinese imports to 25 percent from 10 percent currently.

The dollar index, which measures its value against six major peers, held steady at 97.01, trading near its highest level since Nov. 15.The greenback has advanced over the previous two sessions as investors sought the safety of the world’s most liquid currency on fears that the global economic recovery was losing steam. “Structurally, the latest bout of dollar resilience at this juncture is borne out of market nervousness and not from any renewed Fed hawkishness,” said Emmanuel Ng, currency strategist at OCBC Bank in a note.

Traders are also focused this week on a speech on Wednesday by Fed Chairman Jerome Powell and minutes from the central bank’s Nov. 7-8 meeting to be released on Thursday, for further cues of how many more times the Fed is likely to hike interest rates. “Markets are really keen on what Powell has to say given there has already been a sharp adjustment in Fed hike expectations,” said Nick Twidale, chief operating officer, Rakuten Securities. “We see an acknowledgement of slowing global growth as negative for the dollar.”

The Fed is widely expected to raise interest rates by 25 basis points in December but the key debate in the market now is the pace of the U.S. central bank’s monetary tightening path in 2019.Twidale warned that the dollar could see safe haven buying if there is no positive news from the upcoming G20 meeting in Buenos Aires on Nov. 30, where Trump and Chinese President Xi Jinping are likely to discuss contentious trade matters.

The euro gained marginally versus the greenback to trade at 1.1335 against the greenback in Asian trade. It briefly hit an intra-day high of 1.1383 on Monday after signs that Italy may cut its budget deficit target to satisfy the European Union. The single currency later gave up its gains due to weaker-than-expected economic data out of the euro zone.

Our Range for today: R13.7500 – R14.0500