DAILY MARKET UPDATE - 04 OCTOBER 2019 | Merchant West


daily markets commentary

Merchant West Capital Markets

USD/ZAR 15.1300 | EUR/ZAR 16.6062 | GBP/ZAR 18.6734

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Market Commentary:

Reports have emerged that suggest that the White House will formally object to the current impeachment probe against Trump, stating that it will not cooperate given that the probe was initiated without a vote taking place in the House. The objection could lead to a protracted legal battle between the two parties, given that there is no constitutional procedure for launching such an inquiry. The Democrats may, however, choose to head straight to considering articles of impeachment, however, this remains a risky move and could embolden Republican supporters ahead of the 2020 elections.

We end the week with the September jobs report, which will take on added focus today given the recent weak data seen out of the US over the last few days. The latest unemployment numbers showed that the US labour market remains extremely tight. A weak print will likely embolden expectations for further Fed rate cuts in the coming months, while another strong print could see the Fed stick to its cautious, data-dependent stance that was highlighted at the September FOMC meeting
Domestic economic data released this week showed that the domestic growth outlook remains weak, with the latest Standard Bank “whole economy” PMI reflecting slowing activity. In addition, electricity production figures printed a 4.7% y/y contraction in consumption in August, supporting the trend of continued slowing in production this year. Note that this follows tariff hikes in July, and limited load shedding highlighting the structural headwinds that industry is facing. We could well see the manufacturing industry reflecting very weak results for Q3, as yet another reason to look at the National Treasury’s tax revenue numbers with some scepticism. A look at the JSE Alsi’s performance for Q3 points to a defensive market, too.

The focus for the session ahead remains with the US, as the latest US jobs report will be up for release. Weakness could further take the shine off of the USD given that consumer sectors have been holding up until now. A weaker report may, is to some degree being anticipated given the more modest expectations. Any further evidence of an economy losing momentum will entrench a deeper USD retreat back to levels seen in mid-Sep and that may assist the ZAR heading into the weekend.
Turning to the spot markets, and the USD-ZAR has now retraced all of its October rally to trade around R15.12/dollar ahead of the local open, after reaching as high as R15.40 during intraday trade on Wednesday. This seems to be being driven by the confluence of some progress in pushing towards domestic reforms, while a particularly weak spate of US data has put the USD under pressure this week. Significant Fibonacci support has been broken in the 15.18 region, which was the 23.6% retrace of the 14.50-15.40 move, with 15.05/06 now the level to watch as the 38.2% retrace, with a break below bringing the 50% retrace at 14.95 into view.

Range for the day: 15.05 – 15.30