Daily Commentary - 12 November 2018

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

USD / ZAR 14.4007 - EUR / ZAR 16.2390 - GBP / ZAR 18.5412 -

Economic Events:

12 November : US Holiday

13 November: GE CPI Data ;ZAW Survey Current Sentiment

14 November: GE GDP Data - EC GDP Data - SA Retail Sales - US CPI Data

15 November: EC Trade Balance - US Empire Manufacturing ;Retail Sales ;Initial Jobless Claims

16 November: EC CPI Data - US Industrial Production ; Total Net TIC Flows

Market Commentary:

Whether it was just profit taking at the end of a week's worth of gains, or it had more to do with the USD surging following the Fed's more hawkish tone on Thursday evening, the ZAR weakened sharply the past two trading sessions and starts the week in much more prudent fashion. With the USD trading at near 16-month highs it seems almost impressive that the ZAR is trading closer to the 14.0000 handle than 15.0000. However, such is the environment at the moment where domestic consumption and investment remains weak, where the trade account nudged back into a small deficit of R3.0bn in Sep, generating a similar cumulative deficit for the year-to-date and where SA is offering a good discount on some attractive yields.

Global equity stocks also traded weaker on Friday. The S&P and Nasdaq decreased by 0.9% and 1.6%, weighed down by technology stocks and oil prices. The Nikkei and Hang Seng closed 1.1% and 2.4% weaker, while EM stocks and the JSE ALSI shed 1.4% and 1.7%.

Oil prices continued to trend lower on Friday after reports of higher stockpiles, which was further exacerbated by news that the US has granted waivers to some importers to continue importing oil from Iran for about six months. Brent crude dipped below US$70/bbl – about 20% lower than October’s high. However, oil prices open slightly higher this morning following weekend reports that Saudi Arabia plans to reduce supply by 0.5m barrels a day in December.

Economically, it will be a much quieter week ahead with only domestic retail sales of any consequence. Offshore US data will always be important and could influence market expectations, but domestically, retail sales figures have some bearing both for the economy and for the ZAR. Although the market expects some y/y growth, it is looking for deceleration to confirm that domestic consumptive demand remains weak. From a trade account perspective this suggests that demand for imports is unlikely to ramp ahead just yet.

Some attention will shift back to the Zondo Commission and public enterprises minister Gordhans testimony. Then there is also the small matter of home affairs minister Gigaba that might find himself out of a job given the remedial action prescribed by the Public Protector who gave President Ramaphosa 15 days to respond. That time expires on Wed. The potential for another cabinet reshuffle should not be ruled out. The cloud hanging over Gigabas head is not the message the Ramaphosa government wants to be sending out and he will be looking to emphasise the point that he will hold his ministers to account.  Source : ETM and RMB

Our range for the day: R 14.2000 -R 14.6000