Daily Commentary - 05 December 2018

Merchant West Capital Markets

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Market 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: 

The Rand traded fairly well in the morning session in anticipation of relatively positive GDP figure which delivered a 2.2% q/q expansion in Q3 causing the economy to exit the recession with ZAR cheering all the way down to close to four-month highs at 13.54. This was however short lived as the New York session saw ZAR hold hands with TRY and turn by close to 2.5% or 35-big figures on the day all the way up to 13.89 with some selling of USD along the way, finishing 1.4% weaker by the close. We are expecting volatility to continue playing out as investors look for their next moves into the festive period with uncertainty around US-China trade talks, Brexit and global equities at the forefront. The U.S. financial markets will be closed today for a national day of mourning to honour former President Bush – which should effect market activity and liquidity accordingly. ZAR is now far off the golden 200-day moving average levels of 13.41 and would not be surprising if we move closer towards 14.00 with two-risk at play. (BNP Paribas).

 

After performing relatively well through most of yesterday, the ZAR succumbed to a confluence of pressures through the afternoon. Initially there was plenty of good news to trade on. GDP stats were revised upwards historically and came in stronger than anticipated to confirm that SA did not in fact enter a technical recession earlier this year and was in better health than originally anticipated. That came together with the announcement of the new NDPP Shamila Batohi which has been welcomed as an inspired appointment across political party lines. It is yet another incremental positive step forward needed to undo some of the sclerotic prosecutorial culture bred under the Zuma administration, which was clearly aimed at shielding Zuma and his corruptors from prosecution. Her appointment brings hope that the NPA can now conduct its business in a manner befitting its significance as a guardian of the constitution and the rule of law. (Investec)

 

Eskom's crisis has now taken on a new level of significance given that the electricity SOE is planning on asking the government for recapitalisation funds of R100bn. This in itself would elevate the country's debt/GDP ratio by a further 2.0% and renders the guidance offered in the MTBPS outdated. SA's debt profile deteriorates beyond National Treasury's expectations and offers perspective on why SA bond yields are trading at such a spread over inflation and repo. What is even more disturbing is that the R100bn requested may in fact be too conservative to render Eskom properly sustainable. (Investec)

 

UK Parliament to vote on PM May’s Brexit deal on Dec 11 despite recent speculation that it could be pulled. Fed to release its Beige book later today to give the market guidance after cancellation of Powell’s testimony. (Investec)                               

 

Range for the day: 13.70 - 14.05