Daily Commentary - 03 December 2018

Merchant West Capital Markets

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Market Data: 

03 Dec: EC Markit Manufacturing PMI | SA Business Confidence Index, NAAMSA new vehicle sales | US ISM Manufacturing PMI

04 Dec: SA GDP data | EC PPI Data

05 Dec: EC Markit PMI Composite. Retail Sales | US MBA Mortgage Applications, ISM Non-Manufacturing PMI, Fed's Powell Speech 

06 Dec: US Initial Jobless Claims, Trade Balance

07 Dec: EC GDP Data | US Change in Pvt payrolls, University of Michigan Sentiment

Market Commentary: 

Local:

South Africa Q3 GDP figures on Tuesday (4 December) will provide the week’s focus. We forecast +1.7% q/q saar (+0.6% y/y) after two consecutive quarters of contraction (Q2: -0.7%, Q1: -2.7% q/q). Wholesale, retail and the restaurant trade (+0.6pp), manufacturing (+0.6pp) and financial services (+0.4pp) are likely to have driven the positive performance, monthly high-frequency data momentum suggests.

The agriculture sector also looks likely to have pulled itself out of the doldrums in H2 following the end of the severe drought in the Western Cape, which saw the sector shrink by a cumulative 17% in H1. Mining is likely to have been the biggest drag on Q3’s GDP performance (-0.4pp) given depressed production growth in precious and industrial metals. Other supply-side sectors in construction and utilities are unlikely to have helped much given (still) supressed domestic demand conditions – though, where the latter is concerned, higher tariff increases should at least have led to a modest QoQ improvement.

Net, the numbers are unlikely to show an economy where activity is reviving rapidly – rather one that has merely crawled out of recession due mainly to weak bases and more favourable weather conditions. Expenditure-side GDP detail is likely to show a still mildly positive net trade performance, slightly better supported by household consumption spending (helped by still low inflation) and a marginal improvement in company inventory rebuilding following big drawdowns in Q2. Gross domestic fixed investment is unlikely to have shown a meaningful improvement given persistent policy uncertainty, particularly relating to land. We expect these conditions to last at least until next May’s general elections, with a risk that policy uncertainty and growth malaise continue into 2020 with weaker global growth headwinds to contend with. Source: BNP

International:

Friday's trading session was characterised by a rather cautious approach which led to a firmer greenback ahead of the G-20 summit over the weekend.  The dollar index rose to high of 97.311 before closing at 97.272. The single currency, the euro, fell to a low of $1.1302 before closing at $1.1315 on the back of broad-based dollar strength. Similarly, Pound Sterling tumbled to a low $1.2733 before closing at $1.2751 as traders bet that British Prime Minister Theresa May will not be able to pass her Brexit deal through Parliament on the 11th of Dec. Source: ABSA

ZAR posted its best monthly performance against the dollar this year in November, thanks to a rate hike by the SARB and hints of a softer policy stance by FED.  The currency was also buoyed by expectations of a trade truce between the U.S. and China as it climbed to a three-month high against the USD before giving up some of its gain on Friday. We had GDP on tomorrow and expect 1.7% and getting out of our “technical” recession. BNP has said to expect a choppy range bound week. Source: BNP

Our range for the day : R 13.6000 – R13.8300