Daily Commentary - 13 September 2018

Merchant West Business Finance

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

USD / ZAR 14.3626 - EUR / ZAR 16.1519 - GBP / ZAR 18.4995 -

Economic Events:

12 November : US Holiday13 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:

The U.S. Dollar remains firm with strong momentum after reaching its highest levels in over eighteen-months yesterday and is currently trading 1.1240 vs. the Euro sending most EM currencies into the red. This leaves ZAR softer by close to 1% at the beginning of the week, holding onto the 14.40/50 level as we open at 14.48 this morning but have quickly moved down to 14.37 currently. Investors remain long USD going into the final stretch of the year with seasonal demand for the hard currency due to peak – in the short-term ZAR is bound to remain volatile with the 14.50 levels in sight.

The absence of event risk in the US emphasised the geopolitical developments playing out across the North Atlantic, as markets weighed up the possibility of the UK acceding to the proposed backstop on the Irish border as part of its Withdrawal Agreement from the EU. GBP/EUR has provided a strong barometer for market sentiment with the pair’s surge to a six-month high last week, reflecting optimism that a deal would be reached. Those levels of enthusiasm have started to fade somewhat, with GBP/EUR dropping to 1.1452 as the final stage of talks is proving immensely difficult.

The JSE was among the worst performing G20 stock indices overnight, shedding over 2% as smaller trade volumes and a spate of negative corporate news dragged stocks lower. If the dismal start to Asian bourses are anything to go by, with Japan’s Nikkei down 3.2%, then the local securities exchange is in for another strenuous day. This doesn’t bode particularly well for the rand with implied 3-month volatility still elevated at around 18%. Given recent price activity, we expect a 20c trading range today.

There are barely any calendar releases of interest today. Data might be scarce, but energy reports are plentiful with OPEC’s monthly publication and the IEA’s World Energy Outlook 2018 out today. Given the sensitivity to supply forecasts, any outlandish views could trigger two-way volatility on the Brent crude price, which has dipped below US$70/bbl for the first time in seven months. South African motorists certainly aren’t complaining about the sudden about-turn in the oil price. Source : Rmb and BNP

Our range for the day : R14.2500 – R 14.55000