DAILY COMMENTARY - 30th October 2018

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

USD / ZAR 14.6400 - EUR / ZAR 16.6420 - GBP / ZAR 18.7052 -

Economic Events:

30 October: EC Economic Confidence, GDP Data, Consumer Confidence, Germany CPI Data - US Consumer Confidence

31 October: EC CPI Data - SA Trade Balance

01 November: UK BOE Bank Rate - SA Absa Manufacturing PMI - US Initial Jobless Claims, ISM Manufacturing

02 November: EC Eurozone PMI - US Trade Balance and Change in Nonfarm Payrolls

Market Commentary:

The rand, along with its emerging market counterparts, slowly regained traction against the US dollar yesterday as global risk sentiment improved. The rand in particular felt some much needed relief following the events that transpired in the previous week. The MTBS raised concerns on when South Africa`s debt ceiling will stabilise, and attracted the attention of ratings agencies who expressed their concern over the lack of fiscal measures to counter the escalating debt burden. If Moody`s, the only major ratings agency who still regards our debt as investment grade were to lower their rating, our government bonds will no longer be included in the Citi World Government Bond Index and would cause the rand to depreciate rapidly against other major currencies. However, despite the fears that still prevail in the market, Cyril Ramaphosa`s investment summit seems to have placed a damper on all the negative sentiment. Markets will closely monitor local unemployment figures due later today, with expectations around 27.3%.

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, added another 0.1%. The dollar benefitted from its newfound safe haven status as fears of a global trade war and the nearly inevitable slowing of economic growth once again made headlines. “Investors took cover in the greenback after Bloomberg reported that Washington is preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between U.S. President Donald Trump and Chinese President Xi Jinping fail to ease the trade war” (source: Reuters). The two leaders are expected to meet towards the end of November.

In the European market, political uncertainty continues to weigh on the common currency. The Italian government presented a budget plan that places the deficit at 2.4% of GDP, in breach of the European Union`s fiscal rules. German chancellor Angela Merkel also announced that she will be serving her last term. “The main risk to the euro is if the coalition in Germany collapses before 2019. That coupled with negative news flow out of Italy could lead to the perfect storm,” said Ray Attrill, head of currency strategy at NAB (source: Reuters). In the UK market, the lingering Brexit deal still remains the dominant theme in support of the pound as a successful outcome becomes increasingly likely.

Our Range for today: R14.5000 - R14.7500