Daily Commentary - 03 October 2018

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

USD / ZAR 14.3420 - EUR / ZAR 16.6094 - GBP / ZAR 18.6511 -

Economic Events:

03 October:SA SBSA PMI data - EC PMI data, Retail Sales - US MBA Mortgage Applications, PMI data

04 October: US Initial Jobless Claims, Consumer Confidence

05 October:SA Net Reserves - US Trade Balance, Nonfarm Payrolls

Market Commentary:

The morning session opens with the rand seeing slight recovery. This has been driven by market positive signals coming out of Italy with more positive government deficit targets which in turn lifting emerging markets. The rand was trading at 14.28 at the time of writing on the back of the USD cooling vs the EUR.

As the market seeks direction, this is opening to be a mixed trading session with big focus on the Zondo commission inquiry into state capture. Incumbent Fin Min Nene will be testifying today with rumours doing the rounds that he and his family have benefited from a relationship with the Guptas while serving as Deputy Fin Min and later as Fin Min. This is an issue that needs clarification given Nene’s position. Leaked Facebook posts from EFF leader Julius Malema have fuelled Nene’s compromised position. From 10am this morning the markets are likely to take direction during the hearing, with strong views that Nene will be forced to resign should there be any truth to these allegations especially ahead to the MTBPS later in this month. If Nene depends his position well and refutes all allegations strongly the ZAR is likely to recover given these fears have been priced into USDZAR. Any possible indication that he is indeed compromised will likely see ZAR sell off.

Overnight saw comments from the US Fed Chair Powell indicating the Fed is on track with gradual interest rate hikes, meaning 4 hikes before end 2019. The market is pricing in a 70-80% Dec 2018 hike. In the interim, focus turns to  Friday 5 October US Non-Farm payroll data which is used by the Fed and markets as a barometer of the health of the US economy.

Range for the day: 14.1500 – 14.4500