DAILY MARKET UPDATE - 01 OCTOBER 2019 | Merchant West

DAILY MARKET UPDATE - 01 OCTOBER 2019

markets commentary

Merchant West Capital Markets

USD/ZAR 15.3150 | EUR/ZAR 16.6973 | GBP/ZAR 18.8534

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Market Commentary:

Globally, the ongoing impeachment probe of President Trump has intensified, with new evidence being released that suggests Trump used additional diplomatic channels to his benefit. Reports suggest that Trump asked Australian PM Morrison to assist Attorney General Barr with a probe that could potentially discredit Mueller’s investigation into Russian election meddling. This new evidence has seen public support from Trump’s impeachment rise, with the latest IPSOS poll on the matter showing that 45% of people polled believe Trump should be removed from office, and increase from 37% last week. Going forward, this process is expected to carry on for some time, and will likely continue to have a negative impact on sentiment and financial markets.

Locally, the government budget data released yesterday reflected a lower-than-expected deficit in August, which may have shored up rand and bond sentiment at the margin given concerns about falling tax intake. But it should be said that year-to-date, y/y numbers tell the broader story. For the year so far, revenue is up 4.2% y/y, mimicking inflation, while expenditure growth has tripled to 12.6%.

In terms of the other macroeconomic data released, note that trade and money supply data tied well into the argument that softer growth and a conservative banking sector stance is supporting economic balance – a supporting factor for the rand. A trade surplus of R6.8bn was generated on the back of still-soft rates of money supply growth. While this might explain how the rand was able to recover from August’s worst levels, there are still multiple risks hanging over South Africa’s trade outlook. Soft external demand and concerns over systemic risk from China remain pervasive headwinds, particularly at this late stage of the US business cycle where dollar availability could be falling.

USD-ZAR closed the month out at 15.1363 according to contributed pricing, and while this was about 4% higher than September’s lows, it is a little lower on a month-on-month basis to point to a rand that has managed to hold its own this month. While the USD remains on the front foot, the ZAR will struggle to make back meaningful ground despite its technically oversold position vs the USD. More, important data domestically ahead of the all-important US payrolls data on Friday will keep investors cautious. That being said, levels above 15.2000 have been difficult to sustain and may offer a good enough discount to attract foreign investors searching for yield.

Range for the day: 15.10 - 15.35