Daily Commentary – 29 October 2018

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

USD / ZAR 14.5242 - EUR / ZAR 16.5671 - GBP / ZAR 18.6320 -

Economic Events:

29 October: SA Money Supply

30 October: EC Economic Confidence, GDP Data, Consumer Confidence, Germany CPI Data - US Consumer Confidence

31 October: EC CPI Data - SA Trade Balance

01 November: UK BOE Bank Rate - SA Absa Manufacturing PMI - US Initial Jobless Claims, ISM Manufacturing

02 November: EC Eurozone PMI - US Trade Balance and Change in Nonfarm Payrolls

Market Commentary:

The medium-term budget speech (MTBS) delivered last week by the newly appointed Finance Minister Tito Mboweni,  provided little in terms of rand support. As the speech commenced, the rand weakened rapidly as market participants sold off the local currency to avoid being exposed to any negative surprises. “South African government bonds fell and the rand weakened on Thursday, extending losses from the previous session, after the release of a bleak medium-term budget that risks stripping the country of its last investment-grade credit rating” (source: Moneyweb). Recovery was also off the table as Moody`s and Fitch gave their take on the MTBS shortly after, emphasising their view that the proposed policy measures could potentially be credit negative as debt continues to increase without sufficient offsetting fiscal measures. On a more positive note, “South African President Cyril Ramaphosa declared himself in economic “repair mode” at a major investment conference on Friday as the country raised a total of $55 billion from investors to help haul itself out of recession… Investment commitments of almost 290 billion rand ($20 billion) were made at the conference, Ramaphosa said” (source: Reuters). With all the headlines currently flooding the market, and the subdued appetite for emerging market assets in general, the rand`s direction remains unclear and could take cues from other major currencies.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, gained another 0.01% as it sets forth on its climb. “The dollar edged higher against a basket of its key rivals on Monday, not far off a 10-week high hit after data showed US economic growth slowed less than expected and as global risk sentiment remained fragile. The US currency has found support recently on safe-haven buying as investor demand for riskier assets waned on steep declines in world equity markets on worries over corporate earnings, geopolitical uncertainty and global growth” (source: Reuters). The effects of the trade dispute between the world`s two largest economies, has left the US economy largely unscathed.

In the European market, the euro remains fragile as political uncertainty drags on the currency`s outlook. “The common currency has lost 1.8 percent this month on concerns over Italy’s free-spending budget that would breach European Union fiscal rules” (source: Reuters). The pound on the other hand has shown slight improvement following assurance from Michel Barnier, EU Brexit negotiator, that the finalisation of an exit deal was highly probable and imminent.

Our Range for today: R14.4500 - R14.7500