Daily Commentary - 16 October 2018

Merchant West Business Finance

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

USD / ZAR 14.3635 - EUR / ZAR 16.6326 - GBP / ZAR 18.9177 -

Economic Events:

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:

Rand Tech - An extension of USD/ZAR's bear run from the 15.0625 Oct. 9 peak now depends on a breach of key technical support points and fiscal prudence. USD/ZAR is holding just ahead of its 55-DMA at 14.4335 and daily cloud base at 14.3900. Initial market response to the Moody's rating review delay has been to push the rand higher. The rationale is that South Africa's finance ministry now has more time to fine-tune its mini budget, scheduled for release on Oct. 24. Given the importance of the budget, it would not be surprising if Moody's held off releasing its review until after the budget announcement. The rand was put on a positive trajectory last week following news that former SARB governor Tito Mboweni would replace Nhlanhla Nene as finance minister. Recent price action suggests the ZAR is quick to react to good news and fairly resilient in the face of negative influences. Short-term USD/ZAR stability above 14.00 and below 14.70 favoured (Reuters)

Looking at the day ahead, it will be another quiet day on the local data front which means that the ZAR will look abroad for directional inspiration. The US industrial and manufacturing production stats will be the most significant, but even these are second tier in nature. Whilst the US 10yr bond yield remains well contained for now, the USD will struggle to gain much traction which may play into the ZAR's hands given that there have been some inflows back into SA markets some forced, some voluntary. There appears to be more left in this move and whilst the head and shoulders technical formation continues to unfold on the daily chart, selling USD upticks for now is favoured (ETM)

International front - The U.S. dollar edged up on Tuesday after it was dented by weak U.S. retail sales data overnight, while New Zealand's currency gained on the back of stronger than expected inflation data. The dollar index, a gauge of its value against six major peers, traded steady at 95.143, gaining 0.09 percent on Tuesday, but off an intraday high of 95.37 on Monday prior to release of the retail sales data. That data suggested consumers were reluctant to spend, and came as U.S. bond yields cooled off from its seven-year high last week.

The benchmark U.S. 10 year yields consolidated at 3.16 percent on Tuesday, having hit a seven-year high of 3.26 percent on Oct. 9.To some analysts, the dollar has not been moving like a safe-haven currency at present. “Even when U.S. equities were collapsing and there was a risk-off mood in the global markets, the dollar did not trade strong as one would expect," said Ray Attrill, head of currency strategy at National Australia Bank. “The equity correction is not done... the dollar is behaving in an asymmetric manner - good news is not so good and bad news is much worse in terms of price action for the dollar," added Attrill. An impasse over Brexit talks and global trade tensions have added to the cocktail of negative factors that battered global stocks. The sterling changed hands at 1.3144 as investors wait for more clarity over the post-Brexit status of Britain's land border with Ireland. The euro traded flat versus the dollar at 1.1572, well off a seven-week low of 1.1429 hit last Tuesday.Chancellor Angela Merkel's Bavarian sister party said on Monday it would back political stability in Berlin after suffering big losses in a regional election that their far-right foes hailed as "an earthquake" that would rock the coalition government.

Our range for the day : R14.2000 - R 14.5500