Daily Commentary - 11 February 2019
Merchant West Capital Markets
USD/ZAR 13.6094 | EUR/ZAR 15.4078 | GBP/ZAR 17.5916
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11 Feb - EC Blomberg Economic Survey
12 Feb - SA Unemployment ;Manufacturing Production
13 Feb - EC Industrial Production | SA Retail Sales | US MBA Mortgage Applications ;CPI Data
14 Feb - SA Mining Production | EC GDP Data | US PPI Data ;Initial Jobless Claims ;Retail Sales | CH Trade Balance
15 Feb - EC Trade Balance | US Industrial Production ; Total Net TIC Flows
Although we did not see much movement on Friday – the Rand closed the week in the red by some 2%, a rare weekly loss in the context of 2019. A number of factors are contributing to this move with most EM currencies in the red for the same period as we have seen a steady uptick in the USD on the back of more speculation around the trade talks saga and with central bank rhetoric moving towards neutral. Markets have assessed the SONA presented by President Ramaphosa on Thursday – with the much debated Eskom issue at the forefront. The widely expected split of the power utility was announced in line with our expectations and now investors will turn to the National Budget speech on the 20th of this month for more detail. (We expect that the budget will under deliver in terms of detail on this matter in an election year.) Market activity will return to ‘normal’ due to the end of the Chinese New Year festivities. ZAR has printed as a low of 13.54 this morning with a slight gap, we expect an anchor here at the 13.60 level with some buying opportunities at the dips (BNP Paribas).
South Africa’s data card is fairly busy in the week ahead and will offer some perspective on the productive sector’s performance into the end of 2018 with mining and manufacturing output scheduled for release on Tuesday and Thursday respectively. Meanwhile, some insights on the consumptive sector will be made available via the release of the Q4 unemployment data on Tuesday, followed by the retail sales data for December that is due out on Wednesday. Although labour market data is expected to continue to paint a bleak picture of domestic employment dynamics, retail sales figures will arguably hold more prominence given that South Africa remains highly reliant on consumption to drive economic growth. Expectations are for a correction lower in the annual growth rate in retail sales as the November data appears to have been inflated by the growing popularity of Black Friday sales. On balance, conditions in the consumptive and productive sectors of the economy are expected to remain largely uninspiring in the final month of 2018 amid high levels of unemployment, depressed demand and generally weak domestic economic conditions.
Whilst the data card is obviously important, it will likely be the SONA Q&A and questions around Eskom that take centre stage as bond market investors try to understand the implications for the fiscus. It is clear Eskom will be unbundled, but it is unclear just how the company will be bailed out, what the tariff increase will look like and whether privatisation is indeed an option to take seriously. The combination of all these will determine what sort of an impact is felt on the government balance sheet and whether the tax payer will be paying an extra R10-12bn a year in interest on debt, on Eskom's behalf (Investec).
Global winds are changing for central banks in emerging market economies. Recent dovishness by central banks in advanced economies (including the US Federal Reserve and the ECB) has fostered an environment of low yields and low volatility, spurring carry trades, risky assets and capital flows into emerging markets. The resulting support for EM currencies has curbed inflation expectations, sparking market debate about possible monetary policy easing in EM (BNP Paribas).
Range for the day: 13.4000 – 13.7000