DAILY MARKET UPDATE - 09 OCTOBER 2019 | Merchant West


capital markets

Merchant West Capital Markets

USD/ZAR 15.2675 | EUR/ZAR 16.7143 | GBP/ZAR 18.6179

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email: treasury@merchantwest.co.za

Market Commentary:

Global markets are still looking broadly defensive. The equity market rebound that began on Monday did not last long, with the German DAX, US S&P and now the Australian ASX 200 all reversing their Monday rebounds. The driver here appears to be threefold, with US-China trade tensions taking a less consolatory turn, European political uncertainty due to Brexit frictions alongside some geopolitical concerns amid the likely Turkish invasion of Syria. The probability of a “no-deal” Brexit is becoming more likely with German Chancellor Angela Merkel reportedly showing inflexibility concerning the Irish membership of single customs union, which given the mandate of UK parliament makes a deal impossible. Bloomberg has reported that “Johnson responded by saying that condition, together with the EU’s unwillingness to engage with his latest proposals, paved the way to a no-deal Brexit.” This has, in turn, caused some volatility in Sterling-denominated assets yesterday. Note that Johnson will be required to seek an extension under the Benn Act if a deal isn’t drafted by 19 October, which may ultimately culminate in a general election before further negotiations take place.

In terms of the local session ahead, the SACCI Business confidence index is likely to remain downbeat after reaching its lowest level in 34 years in the August print amid the host of structural issues underlying SA’s weak growth potential. The risk remains that insufficient work towards fiscal reform takes place and that the 30 October MTBPS is underwhelming.

All this to say that the ZAR’s underperformance seen yesterday could continue through the week, with key topside USD-ZAR resistance levels in the 15.40-15.50 region likely to be eyed as investors will be hard-pressed to look favourably on a rand that remains hamstrung by a bloated fiscus, weak domestic growth and investment, and uncertain export environment. We reiterate that a crucial supporting factor until the MTBPS will be whether global developed market central banks can maintain a sense of calm with policy easing, increasing focus on the Fed minutes due later today and the ECB minutes due on Thursday. USD-ZAR is entrenching a 15.00-15.40 trading range for now, but is increasingly looking set to test the upper end of this range.

Range for the day: 15.15 - 15.30