DAILY MARKET UPDATE - 05 OCTOBER 2020 | Merchant West

DAILY MARKET UPDATE - 05 OCTOBER 2020

Merchant West Capital Markets

USD/ZAR 16.4375 | EUR/ZAR 19.2562 | GBP/ZAR 21.2515

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Produced for Merchant West by ETM Analytics

Market Commentary:

There were strong initial gains for the Dollar and Yen on Friday following US president Trump’s positive COVID-19 test, however markets had calmed by afternoon trade, paring gains for the two haven currencies. The greenback and yen ultimately ended the day stronger as the market remained uncertain as to the implications and severity of Trump’s condition.

In the case of the ZAR, the currency encountered some selling pressure in morning trade but managed to turn the day around in stark contrast to other emerging market currencies. After selling off to the 16.80/$-handle, the local unit clawed back nearly 30 cents to end domestic hours at 16.52/$, roughly 0.7% stronger on the day and bested only by the Mexican Peso.

Friday was thus a positive ending to a strong week for the local currency as the string of gains last week saw the ZAR rise over 3.5% against the USD. Having said that, and as seen in the week prior, heightened volatility remains and the ZAR will have to contend with this from here on out. Specifically, later this month Finance Minister Tito Mboweni will present the medium term budget which may provide an update on the move to zero-based budgeting. Whether or not the acceptance thereof has emerged, the market will nevertheless be looking to the Finance Minister for an indication of how he will rein in public expenditure and where spending cuts will materialise from. On that front, one critical spending cut will come from public sector wage increases while a dispute is currently raging between government and unions after promised increases where not honoured earlier in April this year. Treasury has maintained it is unaffordable for the government to honour salary increases at this time, however it remains politically sensitive and thus the odds are stacked against the Finance Minister in his battle to achieve a budget surplus by 2023-2024.

Over the weekend, the market’s main focus has been on Trump’s health status. Conflicting reports have amplified uncertainty, however markets have been generally upbeat in morning trade. It appears Trump’s condition has improved, which should help higher beta and risky assets for today as sentiment lifts. Regardless, this certainly upends the last few weeks of presidential campaigning before the November 3rd election and the market will price this in as the month unfolds. Domestically, the Standard bank PMI is on the local data card today, while the SARB monetary policy review is due tomorrow. External focus will be on central bank meetings this week as well as progress on US stimulus after further comments from US House Speaker Nancy Pelosi that progress is being made towards a bipartisan agreement.

Expected range for the day: 16.38 - 16.54