Daily Commentary - 31 January 2019
Merchant West Capital Markets
USD/ZAR 13.3711 | EUR/ZAR 15.3718 | GBP/ZAR 17.5528
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30 Jan - US MBA Mortage Applications| SA Budget | US GDP Data ; FOMC Rate Decision
31 Jan - SA PPI Data | EC GDP Data | SA Trade Balance | US Initial Jobless Claims
1 Feb - EC Markit Eurozone Manufacturing PMI | SA Absa Manufacturing PMI ;Naamsa Vehicle Sales ( y/y) | US Change in Nonfarm Payrolls ; ISM Manufacturing ;University of Michigan Current Conditions
USDZAR: In what was supposed to be billed as a side show to the ‘Trade Talks’ – The Fed took centre stage and produced fireworks for the market. The dovish signals have now put any chances of a rate hike this year in the balance as the Fed are well and truly in a pause mode and the Dollar moves to the lowest levels since September last year. The Rand was largely lethargic for most of yesterday trading 13.63 till the FOMC that sent ZAR soaring by over 2% taking 13.50 then 13.40 with it quite aggressively towards the 13.33 close, a 30 big figure intraday move. ZAR is up over 8.3% year-to-date and outperforming its peers quite substantially. The U.S./China trade talks will resume today and expect ZAR to spike up again towards 13.50 on any negative headlines. We will be watching for some activity on the back of this move to see if the downward momentum can persist but can expect a consolidation towards 13.50 as we continue to trade below 13.40 at the 13.37 levels currently.
The dollar struggled near a three-week trough against its major peers and U.S. Treasury yields were significantly lower as investors reacted to the Fed’s change in tone. European stocks are expected to follow Asia’s lead and open higher, with Britain’s FTSE edging up 0.05 percent and Germany’s DAX and France’s CAC each climbing 0.3 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan rose to its highest since Oct. 4 and was last up 0.9 percent. Japan’s Nikkei rose 1 percent. The Fed on Wednesday held interest rates steady as expected, and also discarded its promises of “further gradual increases” in interest rates. The central bank said it would be “patient” before making any further moves amid a suddenly cloudy outlook for the U.S. economy due to global growth risks and impasses over trade and government budget negotiations. On Wall Street, the Dow and the Nasdaq rallied 1.7 percent and 2.2 percent, respectively, on hopes the Fed’s pause would give the U.S. economy and corporate profits more room to run.
With the Fed decision out of the way, investors focused their attention on a pivotal round of high-level U.S.-China trade talks aimed at easing a months-long tariff war. The two-day talks which began in Washington on Wednesday are expected to be tense, with little indication so far that Beijing is willing to address core U.S. demands to fully protect American intellectual property rights and end policies that Washington has said force U.S. companies to transfer technology to Chinese firms. If the two sides cannot reach a deal soon, Washington has threatened to more than double tariffs on Chinese goods on March 2. In currencies, the dollar index against a basket of six major currencies stretched the previous day’s losses and slipped to a three-week low of 95.204. A weaker dollar helped nudge the euro to $1.1509, its highest since Jan. 11. The greenback was slipped about 0.3 percent to a two-week low of 108.695 yen. The pound was a shade higher at $1.3127, given some reprieve after slipping earlier in the week when British lawmakers voted down a proposal in parliament that could have prevented a potentially chaotic “no-deal” Brexit. The benchmark 10-year U.S. Treasury yield extended its decline to as far as 2.674 percent, its lowest since Jan. 14. (Data sourced from Reuters)
Range for the day – R13.3000 – 13.5500