Daily Commentary - 30 November 2018

Market Data:

30 Nov - CH Manufacturing PMI | EC CPI Data | SA Trade Balance

Market Commentary:

Local currency - South Africa's rand steadied against the dollar in early trade on Friday, with investors cautious ahead of a crucial weekend meeting between the Chinese and U.S. presidents that could determine the course of a heated trade war over the next year. At 08h30, the rand traded at 13.6600 per dollar, not far off its New York close of 13.6575 on Thursday. "Markets will likely be waiting for indications of an agreement between the U.S. and China, in an effort to avoid an escalation in the trade war. Liquidity is likely to be limited at month-end," Nedbank analysts wrote in a note.

Local Data front

South Africa's producer price inflation (PPI) rose to 6.9 percent year-on-year in October from 6.2 percent in September, the statistics agency said on Thursday.  On a month-on-month basis, PPI quickened to 1.4 percent from 0.5 percent in the previous month, Statistics South Africa said.

International front - The dollar tread water in nervous trade on Friday ahead of a meeting of U.S. and Chinese leaders that might, or might not, lead to a truce in the Sino-U.S. trade war, which would boost emerging market currencies at the expense of safe havens. The greenback has been under pressure this week on growing expectations that the Federal Reserve would slow down its pace of monetary tightening, a view reinforced by comments on Wednesday from Chairman Jerome Powell. Despite the dovish comments from Fed officials, there was no large scale dollar sell-off, partly due to the strength of the U.S. economy, weakening growth elsewhere, and dollar's own status as a safe haven amid the Sino-U.S. trade war.

"If we see a truce, the Aussie and kiwi dollar will perform exceptionally well. We see a lot of upside in crosses such as Aussie/yen which would benefit from a risk on move," said Nick Twidale, chief operation officer, Rakuten Securities. “If tariffs on Chinese imports stay at 10 percent, the dollar is likely to weaken in a risk-on move," he said. Trump has said he plans to significantly hike the existing 10 percent tariffs on Chinese imports by January next year, which would sharply escalate the trade war between the economic heavyweights.  Dollar investors were also carefully watching for any changes in U.S. monetary policy.

Overnight, minutes from the Fed's Nov. 7-8 meeting indicated that another interest rate hike is warranted. But Fed officials also kept the debate open on when the U.S. central bank might pause its monetary tightening and how it would relay those plans to the public. The Fed is widely expected to raise interest rates by 25 basis points in December, which would be the fourth hike for the year. For 2019, the market is now pricing only one rate hike, according to the CME Group’s FedWatch Tool, below Fed's projection of three increases during the year.

"We believe that Powell has not turned dovish but simply toning down his hawkish tilt. We expect a Fed hike in December and the US economy to keep performing and support another four hikes in 2019," said Philip Wee, currency strategist at DBS in a note. The dollar weakened 0.07 percent versus the yen, which changed hands at 113.41 at 0350 GMT. Analysts expect the dollar/yen to remain in an uptrend due to the diverging monetary policies of the Fed and the Bank of Japan. The euro was steady at 1.1390 against the greenback, having risen in the last two sessions as the dollar wobbled on Powell's comments.

Our Range for today: R13.6000 - R13.8000