Daily Commentary - 10 October 2018 | Merchant West

Daily Commentary - 10 October 2018

Merchant West Advisory Services

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

USD / ZAR 14.5985 - EUR / ZAR 16.7795 - GBP / ZAR 19.2184 -

Economic Events:

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:

Following an eventful few weeks in the currency market, this week is proving to be no different as South Africa welcomes its fifth Minister of Finance in three years, which has become a common occurrence. The rand briefly broke the USD/ZAR 15.00 level yesterday as markets anticipated the potential replacement of then Finance Minister Nhlanhla Nene soon after the state capture inquiry revealed his questionable relationship with the Gupta family. “Last week Nene told an inquiry into government corruption he had made numerous visits to the Gupta family, friends of former leader Jacob Zuma accused of unfairly winning state contracts and influencing the firing of ministers. Both Zuma and the Guptas have denied any wrongdoing” (source: Reuters). The threat to market stability did not necessarily lie in the fact that he would be replaced, but rather who would be replacing him. Later in the afternoon, President Cyril Ramaphosa announced that he had proceeded to replace Nene with former Reserve Bank Governor Tito Mboweni, a move welcomed by the markets. The rand had since retraced its earlier losses and losses in certain sectors of the equity market had also been reversed. Markets will closely follow the new appointment with the Moody`s ratings review due on Friday and the medium-term budget speech fast approaching.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, traded mostly flat following a decline in US Treasury yields. Thus far, the ongoing trade dispute between the world`s two largest economies seemed to have mostly one-sided consequences as the dollar gained almost safe-haven status during downturns. However, the tensions appear to have caught up with the US economy. “The International Monetary Fund cut its global economic growth forecasts for 2018 and 2019, as well as its U.S. and China estimates for next year, saying the two countries would feel the brunt of the impact of their trade war next year” (source: Reuters). Despite the weaker sentiment, the dollar remains a force to be reckoned with given the strengthening US economy and the expected interest rate trajectory.

In the European market, fears surrounding the excessive Italian budget deficit weighed on the common currency, but has since eased following assurance by Economy Minister Giovanni Tria, that steps will be taken to avoid entering a financial crisis. In the UK market, the pound continues to strengthen as the likelihood of a favourable Brexit deal between Britain and the European Union increases. “British Prime Minister Theresa May’s possible Brexit deal could receive backing in a parliamentary vote from between 30 to 40 opposition party lawmakers who would be willing to defy Labour leader Jeremy Corbyn, The Times newspaper reported” (source: Reuters).

Range for the day : R14.4000 -R 14.7500