Daily Commentary - 11 September 2018 | Merchant West

Daily Commentary - 11 September 2018

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

USD / ZAR 15.0600 - EUR / ZAR 17.5164 - GBP / ZAR 19.6737 -

Economic Events:

11 September: SA Manufacturing & Production Data ; SACCI Business Confidence ;Retail Sales - US PPI Data ; U.S Fed Beige Book Release

12 September: SA Standard Bank SA PMI - EC Retail Sales - US Trade Balance

13 September:UK Bank of England Rate decision -EC Main Re-Financing Rate - US CPI Data

14 September:EC Trade Balance - UK BOE Carney Speaks in Dublin - US Retail Sales

Market Commentary:

It was an awful and volatile past week for the South African rand, along with other EM currencies, as negative views from the financial crisis in Turkey and Argentina continued declined sentiment toward Ems. Furthermore, poor GDP print, which meant SA had dipped into a recession after two consecutive quarters of negative growth, weighed on the local unit. The Rand opened the week at R14.70/$ before and sustained the break above R15/$, to test two-year high at R15.6925/$. Positive current account data brought some relief for our currency, albeit short –lived as strong jobs data out of the US stoked further weakness towards EM currencies, and ZAR ending the week over 3% down at R15.19/$.

As much as it makes intuitive sense that a sharp sell-off in emerging markets of the magnitude seen recently raises the value proposition to investors, it is clear that the discount offered in some economies is not yet clear given the prevailing fundamentals. Essentially, that implies that the coast is not yet clear for the ZAR. The past two trading sessions has seen the ZAR attempt to stage a recovery only for that recovery to fail through the course of the day.

Emerging market sentiment does not appear to have improved wholesale to the point of the value proposition being an obvious trade. Furthermore, there does not appear to be any form of catalyst to look forward to that might prompt a change of sentiment towards emerging markets which means that the most likely scenario is another attempt for the USD-ZAR to move lower only to lack the momentum required to properly reverse the trend. Investors may need to remain patient for a little bit longer.

Intra-day, there are not many features of the global financial market landscape that significantly raise the probability that the ZAR might perform strongly. Commodity markets as a whole remain on the defensive, the AUD is struggling to regain lost ground, emerging market jitters remain intact and equity markets might best be described as mixed. Although over the medium term, the discount offered on emerging market currencies could induce a recovery, some patience may be needed before that unfolds. Even though selling USD-ZAR up ticks might still be favoured from such levels, the potential for significant gains appears limited intra-day, unless a significant catalyst prompts a break back below the 15.00.

International

 

The US dollar steadied in yesterday’s session, as investor’s fears of full-blown trade war between China and the US grew, at the back of the U.S President Donald Trump’s renewed threats to imposing tariffs on all Chinese imports.

The dollar index, against its majors, was steady at 95.156 after edging down 0.2% overnight. This morning, the dollar struggled to hold on its momentum, opening softer amid positive comments from the European Union’s chief negotiator Michel Barnier on nearing a Brexit deal.

It is speculated that the deal could come into effect within six-eight weeks, providing support for euro and pound, as investor concerns abated.

The British pound closed firmer at $1.3052, its highest level since Aug.2. Similarly, the common currency, the euro, profited from the pause in greenback strength, ending overnight session at $1.1594, further buoyed by easing concerns over rising Italian debt. (Source: Investec and Absa )

Our range for the day: R15.0000 – R15.35000