DAILY MARKET UPDATE - 06 FEBRUARY 2020 | Merchant West

DAILY MARKET UPDATE - 06 FEBRUARY 2020

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Merchant West Capital Markets

USD/ZAR 14.755| EUR/ZAR 16.2129 | GBP/ZAR 19.1558

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Produced for Merchant West by ETM Analytics

Market Commentary:

The ZAR closed yesterday 0.10% in the red at 14.79/$, after some volatile intraday trade saw it up 0.75% at 14.66/$ at one stage. The local unit initially rallied as reports of medical breakthrough in the fight against the new coronavirus in China boosted risk appetite, only to retrace these initial gains as the USD surged on the back of strong employment data and comments by the World Health Organisation (WHO) that poured cold water on the optimism surrounding a potential cure to the virus.  

Closer to home, a spokesperson for President Cyril Ramaphosa revealed that the president is “favourably disposed” to COSATU’s recently unveiled plan aimed at reducing Eskom’s debt. According to COSATU, the Public Investment Corporation (PIC) should provide the bulk of the debt relief, while the government could also make a contribution depending on its finances. COSATU suggested that lenders will get equity in Eskom in exchange for the debt, however, the union has not fully worked out the finer details yet. COSATU went on to state that other options include the use of prescribed assets, or private pensions, to fund state infrastructure. While COSATU looks to be putting its members' money where its mouth is, the market will be waiting anxiously for more information before getting too optimistic about this proposal, as it would not de-politicise the current situation and may make matters worse in the long-run. 

On the domestic data front, the economy-wide Standard Bank PMI surprised to the topside in January, surpassing expectations by rising from 47.6 to 48.3. While the sub-50 contractionary reading still warrants concern, it is somewhat encouraging that the degree of optimism amongst businesses was the strongest since June as firms anticipated improving market conditions. Focus will now shift to the January SACCI business confidence data slated for release today, which should provide some additional insights into private sector sentiment. 

In overnight news, US President Trump was acquitted in his US Senate impeachment trial, as the vote to convict him fell far short of the two-thirds majority required in the 100-seat Senate to remove him from office under the US Constitution. Furthermore, China announced early this morning that it will halve tariffs on some goods imported from the US starting from 14 February, providing a boost to market risk appetite in today’s early trade.

Expected range for the day: 14.65 - 14.85