Daily Commentary - 07 December 2018

 

Merchant West Capital Markets

USD/ZAR 14.0773 | EUR/ZAR 16.0072 | GBP/ZAR 17.9623

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: 

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

Market Commentary: 

Yesterday was a difficult day for the ZAR and extended its correction weaker vs the USD. It was not entirely unexpected and the confluence of factors that played a role were difficult to ignore. Equity markets were under pressure, volatility and risk indices were well up on the trading session, emerging markets suffered portfolio outflows and technical signals on the charts were pointing to the ZAR needing to take a breather. That has however unfolded and through the course of yesterday, SA did receive some good news. Next up we have U.S. jobs data this afternoon – expect to see moderate two-way moves unless we breach

 

Local

 

South Africa’s current account shortfall widened slightly to R177bln in Q3 from a revised deficit of R167bln (previously R164bln) in Q2 as the seasonally adjusted trade surplus narrowed in Q3 following a surge in the value of imports amid firmer oil prices and a weaker ZAR which weighed on SA’s terms of trade. Meanwhile, the shortfall on the services, income and current transfers account narrowed. Ultimately, the shift in SA’s trade balance saw the gap on the current account as a percentage of GDP widen from a revised 3.4% (previously 3.3%) in Q2 to 3.5%. Looking ahead, oil prices have retreated off their recent highs which will reduce pressure on the import bill, and while the latest GDP numbers reflect a better growth environment in Q2 and Q3. The recessionary-like economic conditions are likely to keep the C/A on a relative tightening bias.

 

However, Fitch did not add any major new concerns to its ratings review and reaffirmed SA's ratings keeping its outlook neutral. This will calm some nerves that SA was headed for another ratings downgrade soon courtesy of the unfunded liabilities that government will have to absorb on to its balance sheets related to Eskom as well as the fiscal demands that other SOEs including the SABC, SAA, the SAPO and Denel. The situation as it stands is completely unsustainable and some deep-rooted reforms are required not just with respect to the SOEs but in government's approach to a massively constrained fiscus

 

International

 

The greenback fell victim to fresh fears surrounding the possibility that a widely expected rate hike at the December FOMC could be the last before Federal Reserve pauses in its tightening cycle. The dollar index against a basket of major currencies fell to a low of 96.551 before finishing at 96.810. The single currency, the euro, edged up to a high of $1.1412 before steadying to $1.1374 at the close. Pound Sterling rallied to a high of $1.2810 beforee settling to $1.2782 as Theresa May is said to be weighing a plan to postpone the crunch vote on her Brexit deal in an attempt to avoid a landslide defeat that would risk a major U.K. political crisis.

 

Our range for the day: R 13.900 – R 14.2000