DAILY MARKET UPDATE - 04 FEBRUARY 2020 | Merchant West

DAILY MARKET UPDATE - 04 FEBRUARY 2020

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Merchant West Capital Markets

USD/ZAR 14.85 | EUR/ZAR 16.4056 | GBP/ZAR 19.272

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Produced for Merchant West by ETM Analytics

Market Commentary:

 The ZAR outperformed most of its emerging market peers on Monday despite weak domestic data, rebounding from Friday’s losses with a 0.85% advance against a firm USD to close back below the 15.00/$ handle at 14.90/$. Although this occurred against a backdrop of recovering market sentiment, it was primarily due to an announcement by Energy and Mineral Resources Minister Gwede Mantashe that government would uncuff mining companies by allowing them to produce their own energy without the need for a licence. This decision will go a long way in easing the pressure on Eskom while simultaneously assisting the mining industry in reaching its productive potential. The next step would arguably be to allow more of the private sector to produce energy for self-use, but, for now, this is nonetheless an encouraging development.  

On the data front, South Africa’s economic lull was once again clear to see as both the Absa manufacturing Purchasing Manager's Index (PMI) and the NAAMSA vehicle sales growth stats came out disappointing. The PMI declined for a third consecutive month in January, falling from 47.1 to 45.2, missing market expectations for a 47.3 reading. This also marked the sixth consecutive month that the index came out in contractionary territory below 50.0, as a confluence of factors such as unstable power supply, stunted domestic economic growth, depressed business and consumer confidence, and the absence of structural reforms all continued to affect the sector’s performance. The NAAMSA data also disappointed, with vehicle sales contracting -8.1% y/y in January, missing market expectations for a 3.4% y/y advance. This also points to a weak demand environment, which is symptomatic of broader, structural economic challenges. 

As for the day ahead, a lack of market-moving data could see focus in financial markets shift back to the spread of the Chinese coronavirus, which has now reportedly claimed the lives of more than 420 people across the globe. The outbreak has caused significant volatility in global markets in recent weeks as investors have feared over its potential economic ramifications. 

Expected range for the day: 14.75 - 14.90