Daily Commentary - 15 February 2019 | Merchant West

Daily Commentary - 15 February 2019

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 14.1972 | EUR/ZAR 16.0154 | GBP/ZAR 18.1709

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email: treasury@merchantwest.co.za

 

Market Data:

15 Feb - EC Trade Balance | US Industrial Production ; Total Net TIC Flows 

Market Commentary:

 

In a week where we have seen ZAR trade close to 70-big figures – we moved another 0.5% higher by the close yesterday after peaking at 14.27; we saw some aggressive price action moving from 13.97 in the 14.10’s quickly then followed by a further leg to the highs in the evening trade. Losses for the month-to-date sit at a touch under 6% (the most in the EM basket) as President Ramaphosa failed to deliver any solid turnaround strategy in the face of all the issues at Eskom as we continue with the planned load-shedding which is expected to run until mid-March. The three-month ZAR implied volatility levels have now Sales figure in close to a decade. Although we have sold-off a fair bit, the Rand does feel climbed for a ninth straight day heading into next week’s budget speech with the USD sitting fairly stable – even after the worst U.S. Retail vulnerable to the topside. The next level to watch is a close above 14.30 which opens us up to 14.50 with a break below 13.92 to question the upside in the near-term at least. Source BNP

 

                             

International

 

A disappointing US retail sales reading for December drove the dollar index against a basket of majors to a low of 96.949 before closing at 96.978 as its reinforced expectations the Federal Reserve will not raise rates this year, while the market awaited developments in trade talks between Washington and Beijing. The common currency rebounded to a high of $1.1310 before closing at $1.1299 on hopes of progress in US-China trade talks. Pound Sterling remained on the backfoot, reaching a low of $1.2770 before trading around $1.2811 as British Prime Minister Theresa May suffered a defeat on her Brexit strategy on Thursday that undermined her pledge to European Union leaders to get her divorce deal approved if they grant her concessions. Source ABSA

 

 

From SA's perspective, much of the ugly truth is now in the public domain and known. Event risk in the form of the budget next week looms large and will keep investors cautious but speculation around the budget is at an advanced stage and in the ZAR price to some degree. What is uncertain is whether the US economic cycle has matured to the point of slowdown or whether this is just a soft patch. Indicators are increasingly pointing to the former which implies that there may well be a weaker USD bias that becomes more prevalent through the months ahead.

 

As much as we will be focusing on local developments and the budget next week, it is also important to keep track of the data being released out of the US and the fact that it appears to be losing some of its lustre. Ongoing disappointments in the data as was seen yesterday in the weaker than expected retail sales will result in investors questioning the Fed's stance and pricing in a softening of that stance into the USD. Into the weekend, expect some consolidation to be brought about by a loss in the upside momentum driving the USD. Source Investec

 

Our range for the day : R 14.0000 – R14.3000