DAILY COMMENTARY - 28 NOVEMBER 2018

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

USD / ZAR 13.8746 | EUR / ZAR 15.7270 | GBP / ZAR 17.7628 |

Economic Events:

27 November: US House Price Index

28 November: SA BER Consumer Confidence | US MBA Mortgage Applications ;GDP Data ;Core PCE

29 November: SA PPI Data | EC Consumer Confidence | US Initial Jobless Claims ;FOMC Meeting Minutes

30 November: CH Manufacturing PMI | EC CPI Data | SA Trade Balance | Budget

Market Commentary:

Local data front - South African business confidence fell to the lowest level since the country lost its investment-grade credit rating, as political and policy uncertainty continue to weigh on sentiment. An index tracking SA business confidence declined again in the fourth quarter of the year, according to the latest business confidence index by Rand Merchant Bank and Stellenbosch university's Bureau for Economic Research. Confidence is now at the lowest level since the second quarter of 2017, when former president Jacob Zuma’s move to fire Pravin Gordhan as finance minister saw the country’s debt cut to junk by S&P Global Ratings and Fitch Ratings.

The index declined from a revised 34 points in the third quarter to 31 points. Of the five sectors that together comprise the index, sentiment fell in the motor trade and building, and increased in manufacturing, retail and wholesale trade. Ettienne Le Roux, chief economist at RMB, said in a statement that while President Ramaphosa’s "refreshing new focus on public-private-sector partnerships" was welcome, policy issues continue to weight down on business confidence. Le Roux said the chief policy issue causing uncertainty was around the state's land reform plans. "Unless these are resolved in a more speedily and concrete fashion, private sector fixed investment, and by implication, economic growth will remain disappointingly low. Time is running out as global headwinds are mounting and domestically inflation,as well as policy interest rates, have bottomed” he said.
International front - The dollar held near two-week highs on Wednesday after a senior Federal Reserve official reaffirmed the need for further rate increases and as investors sought shelter in the currency thanks to simmering Sino-U.S. trade tensions. The dollar has come under some pressure recently on signs the Fed might slow down the pace of its future rate increases amid cooling global growth and worries about world trade, investment and corporate earnings. However, in comments on Tuesday Federal Reserve Vice Chair Richard Clarida backed further rate hikes though he said the tightening path would be data dependent. He said monitoring of economic data has become even more critical as the Fed edged ever closer to a neutral stance.

"Clarida comments certainly hinged towards hawkishness...we expect the Fed to remain consistent and adjust monetary policy according to incoming economic data which has so far been pretty robust," said Stephen Innes, head of trading, APAC, at Oanda."We are expecting the Fed to raise rates in December and 3 times in 2019."Innes noted the dollar strength also reflected risks around the upcoming G20 summit in Buenos Aires between Nov. 30-Dec. 1 where U.S. President Donald Trump and his Chinese counterpart Xi Jinping are scheduled to meet and discuss contentious trade matters. Trump’s comments this week in an interview with the Wall Street Journal that it was "highly unlikely" he would accept China's request to hold off a planned increase in tariffs had scared riskier assets in a boost to safe-haven currencies including the dollar and the yen.)
Attention will now turn to a speech by Fed Chairman Jerome Powell later on Wednesday and the minutes from the Fed’s Nov. 7-8 meeting on Thursday. Investors would be looking to further clues on how many more times the U.S. central bank is likely to hike rates in 2019. The dollar index , a gauge of its value versus six major peers, traded at 97.42 after rising for three sessions in a row. The index is sitting just below this year's of 97.69. The euro changed hands at 1.1295 against the greenback, gaining 0.07 percent versus the dollar. The single currency has lost 1.5 percent of its value in recent sessions due to signs of weakening eurozone economic momentum.
Our Range for today: R13.8500 - R14.0500