Daily Commentary - 06 February 2019

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 13.4561 | EUR/ZAR 15.3258 | GBP/ZAR 17.4052

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:

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:


South Africa's rand weakened early on Wednesday as the dollar regained some ground and investors kept shy of the local currency awaiting signs of a recovery in the economy. At 08h40, the rand was 0.28 percent weaker at 13.4200 compared to an overnight close of 13.3825 in New York. The dollar held steady after President Donald Trump's State of the Union address, showing little reaction to indications of another government shutdown. With activity in currency markets remaining subdued following holidays in Asia, the rand struggled to find takers as investors held on to gains after last week's rally and awaited President Cyril Ramaphosa's state of the nation speech on Thursday and the annual budget later in the month.

Recent data has shown the recovery in Africa's most industrialised economy remains sluggish, although the rand remains an attractive carry target with inflation falling and the central bank set to switch to easing lending rates in 2019.However, a Reuters poll this week found the rand was likely to lose about half of the 7 percent gains made against the greenback since the start of the year over the next 12 months, pressured by fiscal constraints and weak growth. The only data release set for Wednesday is the South African Chamber of Commerce and Industry's monthly business confidence indicator for January. Bonds were also weaker, with the yield on the benchmark government issue due in 2026 adding 3 basis points to 8.62 percent.

Local Data front - Activity in South Africa's private sector deteriorated slightly in January as output and new orders fell while exports rose, a survey showed on Tuesday. IHS Markit's Purchasing Managers' Index (PMI) rose to 49.6 from 49.0 in December, remaining below the 50 mark that separates expansion from contraction for the seventh month in a row. The first increase in export orders since September 2017 helped arrest the rate of decline in business conditions, with demand for agricultural products in particular growing strongly.

"This points towards a modest recovery in the private sector during 2019, as indicated by IHS Markit's forecast of 1.4 percent annual GDP growth," said IHS Markit economist David Owen. While firms said overall demand in the first month of the year was subdued, they were upbeat about future demand and output, citing ongoing political reforms as a likely boost to the economy and consumer activity. Africa’s most industrialised economy grew 2.2 percent in the third quarter of 2018 after contracting in the preceding two quarters, and has seen sentiment brighten since Cyril Ramaphosa became president last February. He has promised to tackle corruption and reform economic policy. Last month, the central bank forecast economic growth of 1.7 percent for 2019.

International currency front - The dollar held steady against its peers on Wednesday, showing little reaction to U.S. President Donald Trump's State of the Union address which touched upon trade and budget issues, but provided investors with few surprises. In an annual speech on Tuesday outlining his priorities for the coming year, President Trump said that illegal immigration was an urgent national crisis and reiterated his vow to build a border wall. Trump also said any trade agreement with China "must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs."

The dollar index against a basket of six major currencies was little changed at 96.072, after briefly touching a near two-week high of 96.135. "Trump's address did not contain surprises. He did not, for example, declare a state of emergency (over border funding) nor make surprising comments about China," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust. "The fall by the Australian dollar appears to have generated more attention," Sera added.

The Australian dollar tumbled after central bank chief Philip Lowe opened the door to a possible rate cut after more than a year of signaling tighter future policy. In his first public speech of the year, Lowe said rates could go in either direction, depending on the labour market and inflation. The Aussie dollar was last down 1 percent at $0.7165. The Reserve Bank of Australia has left its official cash rate at a record low of 1.50 percent since August 2016 and Governor Lowe had repeatedly emphasized the next move was more likely to be up. The euro was little changed at 1.1400 against the greenback, after slipping 0.25 percent the previous day to its lowest since Jan. 28.

The dollar has been managed to hold its ground although U.S. Treasury yields declined the previous day and pulled back from one-week highs. “The dollar is managing to draw support in spite of lower Treasury yields thanks to a combination of a dovish-sounding Federal Reserve and U.S. data, which has been relatively strong on the whole recently," said Shusuke Yamada, chief Japan FX and equity strategist at Bank Of America Merrill Lynch.

Our range for the day : R 13.3000 - R 13.5000