Daily Commentary - 07 November 2018

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

USD / ZAR 14.0947 - EUR / ZAR 16.1531 - GBP / ZAR 18.5118 -

Economic Events:

07 November: GE Industrial Production - EC Germany CPI Data ; Retail Sales - US MBA Mortgage Applications

08 November: US Initial Jobless Claims ; FED Interest rate decision

09 November: UK GDP Data - US PPI Data ; University of Michigan  Sentiment

Market Commentary:

Domestic Front - South Africa's rand firmed on Wednesday, extending an overnight rally, as dollar buyers favoured caution and assessed U.S. mid-term election results to gauge the possible impact on policy and consequences for global growth. At 08h40, the rand was 0.21 percent firmer at 14.0900 per dollar, having reached a one-week best of 14.0300 overnight as the Democratic Party wrested control of the U.S. House of Representatives from the Republicans. The rand is down nearly 15 percent against the greenback this year, but has made strides in recent weeks due to a return of global risk appetite and easing of local political concerns. With the 14.20 technical resistance level cleared, the currency is seen testing the 14.00 pivot, which could unlock further gains, traders said. Thursday's rate decision by the Federal Reserve will likely temper rand bulls in the session.

SAA – South African President Cyril Ramaphosa said on Tuesday that closing down struggling state-owned South African Airways (SAA) could collapse the country's public finances as the government would have to service its debts immediately. Finance Minister Tito Mboweni said last week that his preference would be to close down the debt-ridden airline. "If we for instance were to say let it be shut down, it basically means the debt that SAA carries becomes payable immediately and will have an impact on the debt that is carried by all the other state-owned enterprises. That is how you are then able to even collapse our fiscus," Ramaphosa told parliament. Ramaphosa added that it would be difficult for the government to get value from selling SAA as the airline is laden with debt.

International Front - The dollar weakened versus the euro and sterling as traders reacted to the Democratic Party winning control of the U.S. House of Representatives, empowering it to block President Donald Trump's agenda and scrutinize his administration. Analysts say a split Congress may temporarily hurt the dollar because the Democratic Party's capture of the House of Representatives is likely to be seen as a repudiation of President Donald Trump and policies that have boosted corporate growth. “If Congress is split, with the Democrats controlling the House and Republicans the Senate, the prospect of legislative gridlock that would make it difficult for policies such as the President's middle-class tax cut to pass is negative for the U.S. dollar," Kathy Lien, managing director of currency strategy at BK Asset Management said in a note.

The dollar index, a gauge of its value versus six major peers, lost 0.28 percent to trade at 96.04.The greenback has outperformed most of its key rivals this year, benefiting from a robust domestic economy and higher interest rates. "Overall, it is too early to believe that the US dollar has reversed its uptrend. The Fed is likely to be encouraged by last Friday's jobs data that US wage growth has finally picked up," DBS Currency Strategist Philip Wee said in a note. "The Fed is likely to reaffirm, at its FOMC meeting on November 8, its intention to lift its policy rate above 3 percent over the next year." The euro gained 0.15 percent to trade at 1.1443 versus the dollar, off its intraday high of 1.1473. The single currency changed hands about 1.1 percent above this year's trough of 1.1301 reached on Aug. 15.

Our Range for today: R13.9500 - R14.2000