Daily Commentary - 20 November 2018

Merchant West Advisory Services

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

USD / ZAR 14.0083 - EUR / ZAR 16.0654 - GBP / ZAR 18.0341 -

Economic Events:

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:

The latest report by Fitch confirms that the external environment for EMs is not going to become a whole lot better next year. These pressures seen this year are not a blip and economies with substantial imbalance, such as South Africa on the fiscal side, will therefore remain vulnerable to external developments. Following on from Fitch, the IMF was the latest institution to sound the warning drum on South Africa’s macro situation. The Fund said yesterday that optimism in an economic recovery is dissipating as economic growth remains “stuck in a low gear.”  While there is a tacit commitment to reform by the Ramaphosa administration, the fund considers this as having “stalled” and highlights a number of risks both external and domestic. On the one hand, the economy is susceptible to capital outflows as a result of global trade tensions; on the other, rising public debt and contingent liabilities make the economy vulnerable to changing EM fortunes. Eskom, given the magnitude of its liability, is considered a key risk.

The dollar hovered near a two-week low against its peers on Tuesday as cautious comments by Federal Reserve officials over the global outlook and weak data at home raised questions over whether the U.S. central bank will slow down its rate increases. Overnight, New York Fed President John Williams told a Q&A event that “We will be likely raising interest rates somewhat, but it is really in the context of a very strong economy.” Williams noted that the Fed is not on a pre-set course and will adjust monetary policy to keep the economy strong with low inflation. Last week, Fed Vice Chair Richard Clarida and Dallas Fed President Robert Kaplan raised concerns over a potential global slowdown that has seen markets betting heavily that the rate-hike cycle is on its last legs, even as the senior Fed officials signalled more interest rate increases. The dollar index, a gauge of its value versus six major peers, traded marginally lower at 96.17 on Tuesday. The index fell nearly half a percent last week, its biggest weekly drop since late September.

Asian stock markets skidded on Tuesday and Europe was expected to follow, pressured by sharp losses on Wall Street as technology firms tumbled on worries about slackening demand. The dollar sagged after weak U.S. data further sapped confidence in the currency, while oil prices slipped despite expected OPEC supply cuts. European stocks are expected to open lower, with Britain’s FTSE falling 0.1 percent, Germany’s DAX losing 0.5 percent and France’s CAC dipping 0.3 percent. U.S. S&P mini futures were down 0.3 percent. Tech stocks were under pressure across Asia following U.S. losses. In Seoul, Samsung Electronics fell 2 percent and SK Hynix Inc dropped 3.5 percent, while Japan’s Tokyo Electron was down 1.8 percent, Advantest lost 2.7 percent and Sony Corp shed 3.1 percent. U.S. stocks came under heavy selling on Monday, with Nasdaq tumbling 3 percent, as investors dumped Apple, internet and other technology shares. Conflicting signals between the United States and China on their trade dispute added to caution.

Range for the day: USD/ZAR - 13.95/14.2500