DAILY MARKET UPDATE - 09SEPTEMBER 2019 | Merchant West

DAILY MARKET UPDATE - 09SEPTEMBER 2019

capital markets

Merchant West Capital Markets

USD/ZAR 14.8050 | EUR/ZAR 16.3155 | GBP/ZAR 18.1036

Please feel free to contact us on the details below:

JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

Market Data:

09 Sep - UK: BOE Vlieghe Speaks in London | Monthly GDP (m/m) | Trade Balance 

10 Sep - CH: CPI & PPI (y/y) | UK: Jobless Claims Change | SA: Manufacturing Prod NSA (y/y) | Manufacturing Prod SA (m/m)

11 Sep - SA: SACCI Business Confidence | BE Business Confidence | US: PPI Final Demand (m/m)

12 Sep - EC: Industrial Production SA (m/m) | Deposit Facility Rate | SA: Mining Production (y/y) & (m/m) | US: CPI (y/y) | US Monthly Budget Statement

13 Sep - EC: Trade Balance SA | US: Import Index (y/y) | Reatils Sales Advance (m/m) | Uni of  Michigan Sentiment 

Market Commentary:

Rand traders seem to be moving away from their panic stations with the last three weeks seeing a flat-to-lower trading bias on the USD-ZAR. This seems to have been assisted last week by the confluence of some upside surprises to local growth data, some weak US data that led to dollar shedding and a partial recovery in global risk appetite; as China-US trade negotiations have taken on more of a conciliatory tone.

Note that the Chinese central bank announced further policy easing on Friday – a cut to required bank reserves that frees up the amount of liquidity available in the banking system to (potentially) create new loans, but also to shield the sector from bad debts. This seems to be a front running of what has been a decidedly soft patch in the Chinese economy, where some trade data released over the weekend showed that exports are under clear pressure as the effects of the trade war manifest. This feeds into the view that a global growth slowdown is underway. PMI data throughout Asia has also been showing a slowdown in economic activity and it is possible that the region as a whole undershoots growth expectations for 2019.

This forms a structural bearish bias for commodity prices, which have hardly reacted to recent weakening in the dollar. By extension, this also bodes poorly for South Africa’s commodity export sector where Richard’s Bay coal prices are sitting in the region of 40% lower year-on-year. Terms of trade have been a detractive factor from rand sentiment for some time now, as seen in the hollowing out in export revenues seen in the Q2 current account released last week. Yet, it is worth reminding readers that the SARB’s relatively neutral stance at present is likely to be assisting in keeping trade dynamics a little more balanced by ensuring a more prudent stance in the banking sector.

View: The USD-ZAR ended the week at R14.8050, and has already tested lower ahead of the local session as the market prepares for a week focussed around developed market policy easing. This brings the month-to-date gain to 2.8% to mark the best performance of major currencies, following deep underperformance relative to peers through August. Short term support seems to be holding in the 14.70/72 region with Fibonacci support levels also present in the 14.65/68 region and 14.50 after that.

Range for the day: 14.60 - 14.90