Daily Commentary - 26 September 2018

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

USD / ZAR 14.3750 - EUR / ZAR 16.91222 - GBP / ZAR 18.9332 -

Economic Events:

26 September: US MBA Mortage Applications ;New Home Sales ;FOMC Rate Decision

27 September: EC Consumer Confidence - SA PPI Data - US GDP ;Initial Jobless Claims

28 September: EC CPI Data - SA Trade Balance - US University of Michigan Sentiment

Market Commentary:

South Africa's rand remained on the rack on Tuesday with investors unconvinced by the economic stimulus plan President Cyril Ramaphosa announced last week. Stocks were lower as renewed trade war concerns put emerging markets on the back foot. At 17h05 the rand was 0.17 percent softer at 14.41 per dollar, with a move to the 14.50 level seen as a pivot point that could increase selling on the unit towards 14.70.  The currency is down close to 20 percent year-to-date.

A statement by ratings agency Fitch on Tuesday said Ramaphosa's turnaround plan would unlikely boost dismal economic growth significantly.  The rand's reaction to the stimulus plan on Friday was subdued, while traders said the slew of domestic data releases due later in the week was keeping investors on the sidelines. "The market will be most intrigued by Friday’s data points, with money supply, private-sector credit extension, trade balance and budget figures all to be released before afternoon tea," Nema Ramkhelawan-Bhana of Rand Merchant Bank said in a note.

Stimulus Program - President Cyril Ramaphosa’s stimulus package to revive SA’s economy is unlikely to deliver a “significant boost” to economic growth, according to Fitch Ratings.  The global ratings agency on Tuesday issued a report on the economic stimulus and recovery plan. Fitch said the president’s announcement did not change its GDP growth forecast for SA of 0.7% for 2018 and 2.1% for 2019.  "Several of the measures relate to existing proposals, and others will take time to finalise and to have an impact," Fitch said in a media statement.  “The plan does include measures that could support growth, but many relate to long-standing policy ideas that have been slow to implement."  "For example, the approval of the revised Mining Charter was widely anticipated, but its likely impact remains unclear.  The decision not to proceed with the Mineral and Petroleum Resources Development Act Amendment Bill had already been announced and replacement legislation will take time to draft.  Radio spectrum auctions have also been delayed," said Fitch.

The ratings agency said a key aspect of the plan - the reprioritisation of R50bn in spending - could be "modestly positive for growth as the measures targeted could have a greater multiplier effect, as could greater public-private infrastructure investment".  Low trend growth is a persistent sovereign credit weakness for South Africa, reflected in the country's rating of 'BB+'/Stable," the report read.  Fitch added that balancing growth boosting measures with pressure to address high inequality and priorities of fiscal consolidation would be a challenge if growth did not recover.  "With a general election due next year, the government may be less willing to offset any deficit overshoot," Fitch noted.

Foreign Exchange - The dollar largely stuck to tight ranges on Wednesday morning as investors awaited policy cues from the Federal Reserve, which is widely expected to raise interest rates later in the day, and as the Sino-U.S. trade dispute dampened demand for risky assets.  Investors were also watching talks between U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe due in New York later on Wednesday to see if the two countries have made progress on how to promote bilateral trade following a round of trade negotiations.

Global markets have been on edge in the past few months as the escalating Sino-U.S. trade dispute stoked uncertainty about the outlook for global growth and broader monetary policy for some developed and emerging market economies.  “In the trade dispute, China and the United States have made no real progress on having direct negotiations," said Kumiko Ishikawa, senior analyst at Sony Financial Holdings. “The market isn't shifting aggressively to a risk-on mode as a result," she said.

The dollar index, which measures the greenback against six major currencies, has slipped around 3 percent since mid-August.  The index edged higher to 94.187 on Wednesday, sitting near a 2-1/2 month low of 93.814 touched on Friday.

Meanwhile, the Australian and New Zealand dollars got a boost after figures showed New Zealand business sentiment rose from a decade-low in September.  The Aussie and Kiwi advanced respectively 0.3 percent and 0.4 percent against the greenback.

Our range for today: R14.2000 – R14.5000