Daily Commentary - 09 October 2018

Merchant West Financial Services Company

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

USD / ZAR 14.8760 - EUR / ZAR 17.0657 - GBP / ZAR 19.4239 -

Economic Events:

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 appears to have steadied following yesterday`s rapid slide after it emerged that Finance Minister Nhlanhla Nene sought relief from his ministerial duties, citing government sources. This new development is unfolding at a less than ideal time. “Reports that Nene may be on the way out just two weeks before a crucial mid-term budget statement are adding to risks for the rand at a time when rising U.S. rates are weighing on emerging-market assets globally. Outflows from South Africa’s bond market are already at a record for one year, and Moody’s Investors Service is set to assess its Baa3 rating of the country’s debt on Friday” (source: Bloomberg). Political risk has been one of the major obstacles that contributed to the local economy falling into a technical recession, and is proving very difficult to escape. If history teaches us anything, ministerial replacements will not be favourable for the local currency market, as seen over the last two years. However, despite jitters, a probable cabinet reshuffle might serve as an opportunity for President Cyril Ramaphosa to regain the confidence of markets. Negative sentiment that kept the rand on the back foot also weighed on the JSE with the Top 40 trading down 0.45% and the All Share down 0.35%.

In the US market, despite the largest speculative bullish bets on the dollar in nearly two years, momentum appeared to dry up as the dollar steadied against other major currencies. Higher bond yields and trade fears are catching up with the greenback and could weigh on further upside. Rising treasury yields also interfered with the Federal Reserve`s hawkish interest rate rhetoric, and could drag on their proposed monetary policy implementation. The situation is not only isolated to the US, with analysts at JP Morgan noting a decline in risk sentiment. “The IMF added to the malaise by cutting forecasts of global growth for both this year and next, including downgrades to the outlook for the United States, China and Europe” (source: Reuters).

In the European market, the euro remains largely unchanged as Italian politics capped movement near multi-week lows. “Italian Deputy Prime Minister Matteo Salvini, speaking at a media conference with French far-right leader Marine Le Pen on Monday, denounced European Commission President Jean-Claude Juncker and Economics Commissioner Pierre Moscovici as enemies of Europe” (source: Reuters). This followed an ongoing dispute with the European Union over the increasing budget, as plans for a wider deficit are in breach of common rules. In the UK market, the Brexit deal remains the dominant theme and could potentially derail the pound if a deal is not reached before the imminent deadline.

Our range for the day : R 14.7000 - R15.1000