Daily Commentary - 09 November 2018

Merchant West Business Finance

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

USD / ZAR 14.2778 - EUR / ZAR 16.1934 - GBP / ZAR 18.5901 -

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 edged lower on Friday, giving back gains from earlier this week, as investors took profits and awaited the next market catalyst. At 08h30 the rand was 0.32 percent weaker at 14.1800 per dollar after closing at 14.1350 overnight in New York. The rand rallied to 13.8700 on Wednesday following the U.S. midterm elections, breaking through the 14.00 long term resistance level for the first time in two months, lifted by a return of global risk appetite. Investors have since taken the rand rally as a chance to buy the dollar cheap with an eye on volatility likely to come from the on-going trade spat between Beijing and Washington.

International Front -The dollar gained versus the euro and sterling on Friday as the U.S. Federal Reserve kept interest rates steady but reaffirmed its monetary tightening stance, setting the stage for a rate hike in December. In foreign exchange markets, investor focus is now shifting back to the divergence between the monetary policies of the United States and other major economies, such as Japan where interest rates are seen staying extremely low. The yen, as a result, remains near a five-week low against the dollar. The dollar index, a gauge of its performance against six major peers, traded at a fresh one-week high at 96.75. "The Fed looks set to raise rates in December. They have been largely unfazed by the equity market correction in October," said Ray Attrill, head of currency strategy at NAB. Attrill added that the dollar strength also follows a weak euro and a jittery sterling over the last few trading sessions.

The Fed has raised its key policy rate three times this year, and the market expects another rate hike in December on the back of a robust U.S. economy, rising inflation and solid jobs growth. According to the CME group's FedWatch tool, the likelihood of the Fed raising rates by another 25 basis points in December is 75 percent. Analysts are also expecting more rate hikes by the Fed next year. "We anticipate two more hikes in 2019: one in March and one in June," Kevin Logan, chief U.S. economist at HSBC, said in a note.

While the Fed is on track to raise interest rates, the BOJ is expected to keep its ultra-loose monetary policy due to low growth and inflation. 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. Meanwhile, the euro traded at 1.1342 on Friday, losing 0.18 percent versus the greenback. The single currency fell 0.54 percent on Thursday as traders reacted to negative news out of Europe.The European Commission forecast on Thursday that the Italian economy would grow more slowly than Rome thinks in the next two years, leading to much bigger budget deficits than assumed by the new government.

Our Range for the day: R14.1000 - R14.4000