Daily Commentary - 12 December 2018
Merchant West Capital Markets
USD/ZAR 14.2931 | EUR/ZAR 16.1949 | GBP/ZAR 17.8853
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12 Dec :SA Retail Sales ; CPI Data | US MBA Mortgage Applications; CPI Data
13 Dec : SA PPI Data | US Initial Jobless Claims
14 Dec : US Industrial Production ; Markit Manufacturing PMI
Yesterday's economic data beat expectations albeit only marginally. For the most part the markets took the news in its stride and attention turns to the release of the latest inflation and retail sales figures today. Inflation in particular is taking centre stage given the SARB's recent rate hike and the justification it used. The previous headline inflation print showed that CPI accelerated to 5.1% y/y in Oct following a hefty fuel price increase which saw transport inflation accelerate to 10.5% y/y. Core inflation, by comparison, remained anchored at 4.2% y/y for the third straight month, confirming that, in the current tight monetary environment, external price pressures are simply forcing households to cut back on discretionary spend. Looking at the upcoming print, notwithstanding the ZAR recovery seen in Nov, analysts are expecting another acceleration in the headline with fuel prices unchanged during Nov at a record high of R17.08/l. We however, maintain that inflation could continue to surprise to the downside against a backdrop of weak growth, tight money supply and dissipating external price pressures. This would be in keeping with the guidance offered by ETM's inflation risk indicator which continues to confirm that momentum behind inflation remains soft.
This morning, equity markets have stabilised, the VIX has retreated slightly and indications are that the USD-ZAR could extend its recovery a little further. Risk appetite has improved and emerging markets more broadly have staged a modest recovery. Technically speaking, the USD-ZAR is now showing signs of retreating a little further as the stochastics turn around in USD overbought territory and a retest of levels closer to the 14.0000 R/$ handle might be on the cards before the end of the week should sentiment remain more positive.
The greenback was lifted as long-term U.S. Treasury yields bounced from three-month lows. The dollar index versus a basket of six major currencies stood at 97.387 after rising overnight to 97.545, it’s highest since Nov. 13. “In addition to higher Treasury yields, the weakening pound is providing a key boost to the dollar,” said Yukio Ishizuki, senior forex strategist at Daiwa Securities in Tokyo. “With Brexit talks seemingly headed towards a dead end, this has been a golden opportunity for speculative market players to short the pound.” Sterling took a big hit at the start of this week after British Prime Minister Theresa May delayed a parliamentary vote on her Brexit deal. The pound suffered further on Tuesday on media reports that May's parliamentary colleagues believed they had sufficient numbers to mount a no-confidence vote in her leadership. The British currency crawled up 0.15 percent to $1.2505 after dropping to $1.2480 overnight, its weakest since April 2017. The currency has lost 1.7 percent this week. The euro was a shade higher at $1.1330 after shedding 0.3 percent the previous day. China's yuan was firmer in offshore trade at 6.886 to the dollar, extending gains from the previous day.
Range for the day: R14.1000 - R14.4000