Daily Commentary - 15 October 2018

Merchant West Business Finance

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

USD / ZAR 14.4312 - EUR / ZAR 17.7003 - GBP / ZAR 18.9310 -

Economic Events:

15 October: US Empire Manufacturing ,Retail Sales

16 October: EC Trade Balance

17 October:EC CPI - SA Retail Sales - US FOMC Meeting Minutes

18 October: SA Mining Production - US Initial Jobless Claims ;Continuing Claims

19 October: EC Current Account - US Existing Home Sales

Market Commentary:

Local front:

South Africa's rand continued to rally on Friday, lifted by a deep Wall Street selloff and near unanimous bets that Moody's will keep the country's credit rating at investment grade.

At 17h30 the rand was 1.25 percent firmer at 14.4525 per dollar, posting a fresh one-week best as emerging markets overall benefited from a revival in risk appetite after the two-day slide on Wall Street. Markets are also widely expecting Moody's to keep Pretoria's foreign currency rating unchanged and are awaiting the mid-term budget (MTBPS) to be delivered by new Finance Minister Tito Mboweni on Oct. 24."Although it feels odd that Moody's would announce the review such a short time before the MTBPS, it may also reflect the appreciation that it is a communication tool that will not hold any substantive changes," analysts at Investec said.

In March Moody's affirmed South Africa's investment-grade credit rating and revised its outlook to stable from negative. Last month the agency said there was little chance it would cut the country to 'junk' this year. Bonds were also firmer, with the yield on the benchmark government bond due in 2026 down 2 basis points to 9.245 percent.

In the equities market, the All-Share index was 2.38 percent firmer at 53,473 points while the blue chip Top-40 index climbed 2.65 percent to 47,273 points.Global markets recovered on Friday after the aggressive sell-off led by Wall Street.

International foreign exchange:

The dollar firmed against the pound and euro on Monday as unsuccessful British efforts to secure a Brexit deal ahead of a key European Union summit reinforced global investors' preference for safe haven currencies. The euro traded around 0.13 percent lower at 1.1546 on Monday, while the sterling lost 0.36 percent to 1.3106 after hitting an October high of 1.3258 on Friday. The dollar index, a gauge of its value against six major peers, was up 0.13 percent at 95.349.

The problem of Britain's land border with Ireland has thwarted a drive to clinch a Brexit deal, as negotiators over the weekend admitted defeat after marathon talks and pressed pause for the coming days. The pound is also under pressure after former foreign minister Boris Johnson's comments in a newspaper column on Sunday that Britain must stand up to bullies in the European Union and press for a "super Canada" deal. Johnson, a key figure of the campaign to leave the EU in 2016 and bookmakers' favourite to replace Prime Minister Theresa May, is the latest critic to redouble efforts to urge her to rethink her plan to leave the union.

U.S. Treasury Secretary Steven Mnuchin said on Saturday that Washington wants to include a provision to deter currency manipulation in future trade deals, including with Japan, based on the currency chapter in the new deal to revamp the North American Free Trade Agreement (NAFTA). His remark drew concern in Japan, where domestic media ran front-page stories questioning whether this would give Washington the right to label as currency manipulation any future foreign exchange market interventions by Tokyo to keep sharp yen rises in check.

Analysts expect the yen to strengthen in the short term as potential negative sentiment towards equities would catalyze safe-haven demand for the yen. “Our bias is that equities will remain under pressure this week, and thus see scope for USD/JPY to ease somewhat further towards the 110 level," a research note from Mizuho Bank said.

Our range for the day : R 14.3500 - R14.6500