Daily Commentary - 14 December 2018

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 14.3705 | EUR/ZAR 16.2920 | GBP/ZAR 18.0980

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email: treasury@merchantwest.co.za

Market Data: 

14 Dec : US Industrial Production ; Markit Manufacturing PMI 

Market Commentary: 

Ahead of the December festive season where holiday thinned out trade will dominate, the ZAR has struggled to perform to its full potential. ETM indicators had shown that the ZAR might have gained more ground by now and had the potential to retrace back towards 13.0000/$ or below. However, whilst the ZAR might have started on that journey recently, it was stopped in its tracks by a combination of factors, including the resumption of load-shedding, the realisation that much of Eskom's debt would become a major fiscal headache and that developments abroad were not necessarily as ZAR supportive as they were. Looking at data that was released out of China this morning, it was notable that retail sales grew at the weakest pace since 2003. There are a number of signs confirming that the economic cycle in China has deteriorated and that the effects of an over-indebted system are starting to make its presence felt. Smoothed, cyclically adjusted money supply growth metrics highlight how the pressure on earnings and profitability is building, all at a time when China finds itself in the midst of a trade war with the US. It is this softening business cycle which is likely playing a significant role in encouraging the Chinese back to the negotiating table with the US more than anything else.

 

Of interest today will be the SARB's quarterly bulletin and the updated quarterly data that will offer further perspective on the state of the SA economy from an investment and imbalance point of view. Given that the current account data and GDP are already known, today's SARB data will be of cursory interest more than it will be to trade on. Any direction today will likely come from developments abroad and the way in which they affect financial markets and the USD. Technicals on the daily chart of the USD-ZAR suggest that some consolidation is now on the cards and should be anticipated.

 

It was a whipsaw trading session for the USD and by the close of the session the DXY was little changed from the previous session’s close. Whilst there has been a lot of noise in the markets of late, it is likely that investors are gradually shifting their focus towards the FOMC rate decision next week. Another 25bps hike is unlikely to come as a surprise, however, forward guidance beyond next week’s meeting will hold added focus. In the event that the Fed sends a clear message that its hawkish rhetoric is being dialled down, a dollar correction is very likely to ensue. In the interim, however, it seems as though the DXY will remain relatively supported for now. The euro ended the day with slight losses against the dollar yesterday, after struggling to stay in positive territory. The ECB decided to bring its crisis-fighting bond purchase scheme to an end, but kept its policy rate at a very accommodative level, citing weaker Eurozone growth prospects going forward. Today’s Asian session has seen the EUR-USD trade relatively flat, as investors await a new catalyst to push the pair into direction.

Our Range for Today: R14.1000 - R14.4000