Daily Commentary - 22 February 2019

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 13.9750 | EUR/ZAR 15.8530 | GBP/ZAR 18.2272

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JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

 

 

Market Data:

22 Feb - EC CPI Data | US Industrial Production ;Total Net TIC Flows

Market Commentary:

USDZAR: A relatively unchanged Rand leaves us with modest gains of around 0.4% for the week. There are mixed views in the air still around the budget and most are undecided on further directional views with a slight bias to the upside as indicated by the options market. The next hurdle to clear for ZAR will be Moody’s rating assessment scheduled in just over a month’s time for the end of March – with one-month implied volatility on the decline seems to signal easing of some of the associated fears. The ‘limited’ reaction to the budget in ZAR assets including the Rand leaves a few investors with a touch of comfort but we need to recall that the local currency had already lost over 5% for the month after back-to-back weekly declines with domestic risks fairly priced in. Focus will now shift back to developments on U.S./China trade talks as we approach the 1st of March deadlines. Expect to see a choppy ZAR with limited rallies, moving in and out of the 14.00 handle – not finding any clear breaks with a grind towards 14.20

 

Shares in Asia slipped on Friday as a deteriorating global economic outlook outweighed further signs of progress in trade talks between China and the United States. After inching higher in early trade, MSCI’s broadest index of Asia-Pacific shares outside Japan fell into the red as more markets opened across the region, dipping 0.1 percent. Chinese blue-chip shares were down 0.1 percent in late-morning trade after briefly breaking into positive territory. After surging on Monday on optimism over trade talks, China’s major equity indexes have faltered on investor concerns over slowing domestic growth and on indications that Chinese authorities will resort to a benchmark lending rate cut only as a last resort to boost the economy.

Growth in China’s new home prices fell to a nine-month low in January as broader economic weakness increasingly weighs on the property sector.

 

A combination of trade talks and Federal Reserve caution over further rate hikes has provided support to riskier assets, including equities, in recent sessions, said Rob Carnell, chief economist and head of research, Asia-Pacific at ING. But with a more dovish Fed and some sort of trade deal already priced in, further developments on trade “haven’t really been having anything like the impact in markets that they would have done a week or a couple weeks or months ago,” he said. Nevertheless, investors continue to closely watch high-level talks between U.S. and Chinese trade negotiators in Washington, with little more than a week left before a U.S.-imposed deadline for an agreement expires, triggering higher tariffs.

 

The yield on benchmark 10-year Treasury notes edged lower to 2.6842 percent Friday, compared with a U.S. close of 2.688 percent on Thursday as a bump from investor optimism about trade talks progress ebbed. Weak economic data drag down Wall Street. The two-year yield, watched as a gauge of expectations of higher Fed fund rates, eased to 2.5224 percent from a U.S. close of 2.529 percent. The U.S. dollar edged up against the yen to 110.73, while the euro inched slightly higher to buy $1.1337. The dollar index, which tracks the greenback against a basket of six major rivals, was steady at 96.602 U.S. crude dipped 0.2 percent to $56.85 a barrel. Brent crude also shed 0.2 percent to $66.92. Gold rebounded after falling more than 1 percent on Thursday, with spot gold trading up about 0.2 percent at $1,326.30 per ounce.

 

Range for the day – R13.8500 – R14.1500