Daily Commentary - 19 November 2018

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

USD / ZAR 13.9334 - EUR / ZAR 15.9121 - GBP / ZAR 17.9275 -

Economic Events:

19 November : EC ECB Current Account

20 November: GE PPI Data - US Housing Starts

21 November: SA CPI Data - US MBA Mortgage Applications ;Jobless Claims ;University Of Michigan Sentiment

22 November: EC Consumer Confidence - SA SARB Interest Rate Announcement - US Thanksgiving Holiday

23 November: GE GDP Data - EC Manufacturing PMI - US Markit US Manufacturing PMI

Market Commentary:

After a weekend that saw the re-emergence of load-shedding by Eskom, the Rand was slightly weaker in early deals on Monday as investors assess the risks of a softer dollar and the direction of local interest rates. The rand traded at 14.0300 per dollar, 0.34 percent softer than its overnight close.

Local CPI data will be out on Wednesday, with a 20 basis point increase in the year on year CPI reading being forecast. Following on from this the MPC (Monetary Policy Committee) is due to meet at 3pm on Thursday to announce their decision on interest rates. With a possible fuel price decrease on the cards for December and inflation still well within its 3 – 6% range, the consensus is for rates to hold.

In the U.S market the dollar eased slightly versus other major currencies on Monday after Federal Reserve officials expressed caution over the global growth outlook, prompting traders to reassess the pace of future U.S. interest rate increases. The greenback has enjoyed a strong run this year thanks to the Fed’s steady policy tightening on the back of a robust economy and rising wage pressures. A fourth rate hike for this year is expected next month and policy makers had indicated two more by June 2019.But comments on Friday by Richard Clarida, the Fed’s newly appointed vice chair, put to the test market expectations for a steady pace of tightening. Clarida cautioned about a slowdown in global growth, saying “that’s something that is going to be relevant” for the outlook for the U.S. economy.

The EUR/USD is reverting four consecutive daily advances at the beginning of the week. Friday’s strong up move was on the back of another uptick in open interest and quite a moderate drop in volume. That said, despite further upside is not ruled out in the near term, the important drop in volume could limit it somewhat.

While Brexit uncertainty continues to dominate headlines, there is still additional stress being put on the currency by concerns over Italy’s budget proposals to the EU. While the ECB continues to sound less dovish than before, yet risks to the global economy keep building as global slowdown concerns build.

The pound rose on Friday after EU Brexit negotiator Michel Barnier said a deal with the United Kingdom was 90 percent done, although undercurrents of uncertainty in Britain kept the gains in check. More positive noises out of Brussels about reaching a Brexit agreement - the dominant driver of sterling - have been offset by growing unease within Prime Minister Theresa May’s Conservative party about the sort of deal she is hoping to forge.“ A domestic political storm may well be about to hit London. The latest move to extend the (Brexit) transition period beyond December 2020 looks to have really destabilised the domestic political landscape,” said MUFG analysts in a note, “with rumours swirling that some Conservatives are looking to oust PM May, which ups the prospects of a new referendum or early elections.”

Daily range USD/ZAR : R13.9000 - R14.1500