Daily Commentary - 11 October 2018

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

USD / ZAR 14.6854 - EUR / ZAR 16.9507 - GBP / ZAR 19.3691 -

Economic Events:

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 has been caught in a highly volatile trading session following the replacement of Finance Minister Nhlanhla Nene earlier this week, but has since stabilised and has become bound by a tighter range. Despite the rand-positive sentiment the newly appointed Finance Minister has brought to the market, based on hopes of improved governance and fiscal restraint, the week is still far from over. The local unit appears to be drifting again as market participants digest signals from the IMF that emerging markets may experience some hardship, and brace for potential surprises in the upcoming ratings reviews by Moody`s. “Moody’s rates South Africa’s local-currency debt at Baa3, the lowest investment level. The rating company’s stable outlook on the debt means there is little chance of a change in the assessment soon, though it said last month South Africa has to stabilize its debt to prevent a change to negative” (source: Bloomberg). Also, given the relative quiet on the local data front, markets will turn to the strong US dollar for cues. On the JSE, the Top 40 traded down 2.8% and the All Share down 2.54%.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies traded down 0.31%, as the trade dispute begins to catch-up with the US economy. Earlier in the week, the IMF downgraded growth forecasts for both the US and China. Since the start of the trade tensions, the US dollar emerged largely unscathed as it built on its safe haven status, however the appeal appears to be diminishing “The U.S. dollar, usually seen as a safe haven in turbulent times, surprised some currency strategists on Thursday by losing ground after spooked investors drove U.S. stocks to their worst fall in nearly eight months” (source: Reuters). In an interesting turn of events, the once revered Yen attracted more flows as risk appetite faded and a flight to safety ensued. Despite the dollar losing steam, the US economy is not and the dollar holds the potential for further gains.

In the European market, the euro is slowly recovering. “But the euro’s gains are likely to be limited with markets worried about the sustainability of Italy’s public finances, despite Italian Economy Minister Giovanni Tria stating that the government would do everything in its power to regain the confidence of financial markets” (source: Reuters). In the UK market, the pound is also picking up as the probability of an orderly Brexit increases. “EU Brexit negotiator Michel Barnier said on Wednesday the parties had agreed on much of the withdrawal agreement ahead of a summit of the bloc’s 28 national leaders next week” (source: Reuters). Many believe that the pound`s valuation has been depressed by the Brexit uncertainty, and a clean exit deal could send the unit to new highs.

Our range for the day : R 14.50000 - R14.90000