Daily Commentary - 04 February 2019

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 13.3628 | EUR/ZAR 15.2873 | GBP/ZAR 17.4726

Please feel free to contact us on the details below:

JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za


Market Data:

04 Feb - EC PPI Data | US Durable Goods Orders

05 Feb - SA Standard Bank SA PMI | EC Markit Eurozone Services PMI ; Retail Sales | US Markit US  Services PMI ; ISM Non-Manufacturing Index

06 Feb - SA SACCI Business Confidence | US MBA Mortgage Applications ; Trade Balance 

07 Feb - UK BOE Rate decision | US Initial Jobless Claims ;Trade Balance 

08 Feb - GE Trade Balance ;Current Account 

Market Commentary:

Domestic front -  South Africa's rand eased in early trade on Monday as investors took profits from the previous week's rally, with beginning of the month demand for foreign exchange also denting the local unit. At 08h40, the rand was 0.3 percent weaker at 13.3700 per dollar, following a close at 13.3300 on Friday in New York. The rand had a stellar start to 2019, gaining around 9 percent against the greenback, aided mainly by a global push for emerging market assets that was accelerated by last week's dovish message by the United States' FED. With a dearth of top-tier data this week and most of Asian markets remaining closed for the Lunar New Year until Wednesday, the rand is expected to trade within recent ranges between 13.40 and 13.20.Bonds were also weaker, with the yield on the benchmark 10-year bond up 3 basis points to 8.645 percent.

“International intervention” - South Africa expressed disappointment on Sunday after the United States and other Western powers wrote to President Cyril Ramaphosa urging him to tackle corruption, and said those countries had breached diplomatic protocol. The Sunday Times newspaper reported that the United States, Britain, Germany, the Netherlands and Switzerland, had sent a joint memorandum to Ramaphosa through their diplomatic missions in Pretoria to warn that foreign investment was at risk unless South Africa takes tangible action against perpetrators of corruption and other serious crimes.

The countries also expressed concern over what they called "obstacles" to foreign investment such as "constant changes of goal posts" in the regulatory framework for mining and black economic empowerment targets, the paper said. It did not say when the memo was sent. South Africa's Department of International Relations and Cooperation (DIRCO) said it had noted "with disappointment the dispatching of a memorandum to the office of the presidency" by the five embassies. “This is a departure from established diplomatic practice," DIRCO said in a statement. “In terms of acceptable diplomatic practice, protocol and convention, diplomatic missions are expected to communicate to the receiving state by means of a note verbale (diplomatic note) conveyed through the department," it added. According to the Sunday Times, the five countries said that there should be a "clear, unqualified and manifest political commitment to the rule of law, the independence of the judiciary and to honest and ethical business practices."

International front - The dollar held near a one-week high against the yen on Monday, supported by a stronger-than-expected U.S. jobs and factory data, although gains are likely to be capped on caution about Federal Reserve policy and amid thinned holiday trade in Asia. Data released on Friday showed that the U.S. economy created 304,000 jobs in January, the highest in 11 months, which beat street estimates. The greenback was marginally higher versus the yen at 109.44, after posting its largest percentage gain in almost a month. “The non-farm payroll was a strong number and is supporting the dollar. A dovish Fed had hit the dollar/yen but rising stocks and solid U.S. data have led to this bounce back in the dollar versus the yen," said Nick Twidale, chief operating officer at Rakuten Securities.

In broader moves, currency markets held tight ranges in early Asian trade with EUR trading flat at $1.1455.China's financial markets are closed all week for the Lunar New Year holiday. Other Asian markets are also closed for parts of the week, keeping wider market activity subdued. “Markets are now waiting for the next catalyst, which will most likely be news coming out of the ongoing U.S.-China trade negotiations," added Twidale. The dollar index, a gauge of its value versus six major peers was steady at 95.60.Despite the strong labour market, the U.S. central bank is widely expected to keep rates steady this year thanks to heightened worries over global growth, especially in China. Growth in the euro area has also been weaker-than-expected with Europe's main economic engines, France and Germany, slowing down.

Rising U.S. interest rates were the main driver of the greenback's outperformance last year. However, most analysts do not see much upside in the dollar this year as U.S. borrowing costs are widely expected to remain steady. Elsewhere, sterling was marginally lower at $1.3078 in early Asian trade. Traders expect the British pound to remain volatile as Brexit uncertainty remains high. The Bank of England is scheduled to meet later this week and widely expected to keep interest rates steady.

Our Range for today: R13.2500 – R13.5000