Daily Commentary - 08 October 2018

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

USD / ZAR 14.9315 - EUR / ZAR 17.1639 - GBP / ZAR 19.5110 -

Economic Events:

08 October: SA BER Consumer Confidence

09 October: GE Trade Balance

10 October:SA SACCI Business Confidence - US MBA Mortgage Applications;PPI data

11 October: SA Mining Production ; Manufacturing Production - US CPI data ;Initial Jobless Claims

12 October: EC Industrial Production - US University Of Michigan Sentiment - SA  Moody's Sovereign Rating Review

Market Commentary:

The rand is starting off the week with another display of volatility as it sharply weakened against other major currencies in earlier trade. Over recent sessions, the rand has left many market participants scratching their heads as sudden changes in direction, often counter-intuitive, emphasised the dire economic landscape. Emerging markets have been under pressure since the crisis in Turkey prompted a sell-off, which has added to the rands` woes. Ever since, the rand has been struggling to retrace its losses as the local economy entered a technical recession shortly after, land reform and a new mining charter weighed on investor confidence, and the US-China trade war and higher oil prices drove emerging economies further into disarray. The ongoing state capture inquiry has also opened up old wounds. “South Africa’s Finance Minister Nhlanhla Nene apologized on Friday for visiting the home of the Gupta brothers - friends of scandal-plagued former leader Jacob Zuma - as pressure mounts on one of President Cyril Ramaphosa’s key allies” (source: Reuters). Since then, according to an article published by News24, “Finance Minister Nhlanhla Nene has reportedly asked President Cyril Ramaphosa to relieve him of his position, as pressure mounts on him to resign following his disclosures last week of his meetings with the Gupta family”. The recent developments are likely to see the rand trading close to the USD/ZAR 15.00 handle as markets mull the possible implications of a new finance minister.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, traded up 0.1%. The dollar found support as data released late on Friday showed US unemployment at its lowest level since 1969, acknowledging the strengthening US economy and supporting expectations of gradual interest rate hikes by the US Federal Reserve. “Speculators’ net long bets on the U.S. dollar rose to their largest since mid-December 2016, according to calculations by Reuters and the Commodity Futures Trading Commission released on Friday” (source: Reuters). The US dollar is expected to maintain its gains and strengthen even further in the short-term as the US economy heats up.

In the European markets, the euro has made slight gains but remains weak as Italian politics weigh on the common currency. In the UK market, the pound remains stable ahead of the looming Brexit deadline. “EU sources said on Thursday that negotiators saw the outline of a compromise on the Irish border issue, raising hopes that a new British offer could unlock a deal with less than 180 days before Britain leaves the trading bloc” (source: Reuters).

Our Range for today:  R14.7000 - R15.1000