Daily Commentary - 21 November 2017 | Merchant West

Daily Commentary - 21 November 2017

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

- USD / ZAR 14.0868 - EUR / ZAR 16.5358 - GBP / ZAR 18.6808 -

Economic Events:

21-Nov: US Existing Home Sales - EU Industrial Production

22-Nov : SA CPI Data - US Durable Goods Orders ; Univ Michigan Sentiment ; FOMC Meeting Minutes

23-Nov : EU PMI Data - SA SARB rate announcement - US Tax Reform Deadline

24-Nov : SA Credit rating review by Mood's and S & P Global

Market Commentary:

On the Domestic front:

South Africa's rand weakened yesterday, bowing to a firming dollar and growing concerns over possible credit downgrades of the country's local-currency bonds to 'sub-investment' at the end of the week. At 16h45 the rand had weakened 0.45 percent to 14.0350 per dollar compared to last Friday's close at 13.9725 in New York, with traders opting to unwind long positions on the local currency and to buy dollars while they remained cheap. Risks are focused on Friday's expected ratings announcements by S&P Global and Moody's. Both currently have South Africa's local bond rating a notch above "junk". Downgrades are likely to trigger outflows of up to 180 billion rand ($12.83 billion), the central bank says.

"If by some miracle the agencies decide not to downgrade us, the level of euphoria will certainly be felt and this could see the rand retrace all the way to its medium-term support level at 13.10/15 over the next few weeks," said Standard Bank chief trader Warrick Butler in a note. Bonds were weaker, with the benchmark government issue due in 2026  adding 8.5 basis points to 9.425 percent, as a combination of ratings fears and bets of a hawkish policy stance by the Reserve Bank when its decides on rates on Thursday.

On the bourse, the benchmark Top-40 index rose 0.78 percent to 54,327 points, while the All-Share index nudged up 0.62 percent to 60,501 points.

On the International front:

The dollar gave back some of its gains in Asian trading on Tuesday but stuck close to a one-week high against a basket of currencies as a German political deadlock continued to pressure the euro. The dollar index, which tracks the greenback against a basket of six major rival currencies, dipped 0.1 percent to 94.029, but was still within sight of its overnight peak of 94.104, its highest since November 14. The euro edged up 0.1 percent to  trade at 1.1739 against the greenback, nursing losses after dropping to 1.1722 in the previous session after German coalition government talks collapsed.

"It was primarily a euro weakness story, based on the failure to form a coalition government in Germany," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana. "Stepping back from the daily activities, the big mountain that we're still looking to traverse is still tax reform -- what form, and on what timeline," Northey said. US Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also sceptical that tax reform would provide a significant boost to the economy.

"Ahead of this week's holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away," said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo. "But due largely to the euro's moves, the dollar is holding up," she said.

On the African Continent:

Zimbabwean President Robert Mugabe faces the start of impeachment proceedings on Tuesday that could see him ousted within the week, against the backdrop of a military takeover dubbed "Operation Restore Legacy". The ruling ZANU-PF party plans to bring the impeachment motion in parliament, after a Monday noon deadline expired for the besieged 93-year-old leader to resign and bring the curtain down on nearly four decades in power. Impeachment would be an ignominious end to the career of the "Grand Old Man" of African politics, once lauded as an anti-colonial hero and the only leader Zimbabwe has known since it gained independence from Britain in 1980. Mugabe has so far shown no signs of stepping down and has called for the weekly cabinet meeting to take place as usual on Tuesday. It would be the first time ministers sit down with him since the military took power on Wednesday.

In the draft impeachment motion, ZANU-PF - which expelled Mugabe from the party on Sunday - accused him of being a "source of instability", flouting the rule of law and presiding over an "unprecedented economic tailspin" in the last 15 years. It also said he had abused his constitutional mandate to favour his unpopular wife Grace, 52, whose tilt at power triggered the backlash from the army that brought tanks onto the streets of the capital last week (Reuters)

Our range for the day : R 14-0000 – R14-1350