Daily Commentary - 08 November 2018

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

USD / ZAR 13.9483 - EUR / ZAR 15.9483 - GBP / ZAR 18.3098 -

Economic Events:

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

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

Market Commentary:

Local Front - South Africa's rand firmed against a weaker dollar on Wednesday after U.S. midterm elections split Congress, lowering the chance of any major U.S. fiscal policy boost soon. Stocks recovered marginally from a sell-off ahead of the elections. At 17h05, the rand traded 1.04 percent stronger at 13.9725 per dollar, having earlier hit a session best of 13.8850.

The dollar index was down 0.43 percent. "After U.S. election results showed a split between the Republicans and Democrats, which will limit Trump's powers, the dollar has taken cue and weakened," said Afrifocus Securities portfolio manager Cheslyn Francis Business confidence rose for a second month in October, bolstered by higher import volumes, vehicle sales and retail sales, a survey by the South African Chamber of Commerce and Industry (SACCI) showed. "The business confidence rising another month, showing business transactions are brisk, provided positive headwind for the rand and also fuelled stocks," Francis said.

The rand has been on the back foot since it was announced in September that the economy had entered a recession. Bonds firmed, with the yield on the government's 10-year paper down 7 basis points to 9.070 percent. On the bourse, the all-share index rose 0.46 percent to 54,700 points while the blue chip top 40 index was 0.36 percent higher at 48,295 points. "The market is doing much better after a cautious sell-off yesterday," said analyst Ryan Woods. “After the results of the U.S. midterm elections, we're starting to see more market certainty."

Economic Data -South Africa's business confidence rose for a second consecutive month in October, bolstered by higher import volumes, vehicle sales and retail sales, a survey showed on Wednesday. The South African Chamber of Commerce and Industry's (SACCI) monthly business confidence index rose to 95.8 in October from 93.3 in September, the business body said in a statement. SACCI said the appointment of former central banker Tito Mboweni as finance minister was one of the significant events that impacted the domestic business climate.

International Front - The dollar traded in a narrow range on Thursday as markets settled after U.S. midterm election results came in as expected, leaving investors free to focus on a Federal Reserve's policy decision later in the global day. The central bank's Federal Open Market Committee (FOMC) is expected to maintain the hawkish language seen in recent policy statements, while keeping interest rates unchanged this time. The Fed has raised rates three times this year as the U.S. economy boomed and inflation started to pick up, and it has signaled a rate rise in December, with two more hikes by mid-2019. "The dollar is likely to benefit as we still expect the Fed to maintain its hawkish stance. The U.S. economy needs rising rates as wage pressures are building and there is a risk of an overheating of the economy," said Sim Moh Siong, currency strategist at Bank of Singapore.

The prospect of further Fed tightening helped the dollar recover against the euro and yen, having lost ground after the mid-term elections resulted in a split Congress, with Democrats winning control of the House of Representatives and Republicans cementing their majority in the Senate. Expectations that the Washington will descend into gridlock has reduced President Donald Trump's chances of pushing through a fiscal stimulus package. The dollar index, a gauge of its value versus six major peers traded at 96.22 on Thursday, gaining 0.23 percent.

The widening interest rate differential between U.S. and Japanese bonds has made the dollar a more attractive bet than the yen, which is often a funding currency for carry trades.The euro traded at 1.1429 against the greenback on Thursday. The single currency had touched an intra-day high of $1.15 on Wednesday, due to dollar weakness rather than any substantial improvement in the euro zone's economic fundamentals. (Reuters)

Our range for the day : R 13.7500 - R 14.10000