DAILY MARKET UPDATE - 10 FEBRUARY 2020 | Merchant West


treasury outsourcing

Merchant West Capital Markets

USD/ZAR 15.025 | EUR/ZAR 16.4423 | GBP/ZAR 19.3656

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Produced for Merchant West by ETM Analytics

Market Commentary:

The ZAR came under some severe selling pressure on Friday to close the session above the 15.00/$ handle, in turn undoing much of its Monday and Tuesday advance to end the week around 0.25% in the red. At 15.06/$, the local unit closed Friday at its weakest level since early-November, highlighting its lack of resilience to external shocks as South Africa’s idiosyncratic structural risks remain entrenched ahead of the upcoming budget speech and subsequent Moody’s rating review.  

The ZAR’s vulnerability to external shocks was clear to see as much of Friday’s selloff was driven by broader risk-off market psychology and rotation into the USD following a strong Stateside employment report. More specifically, investors appeared concerned over the lack of progress made in halting the spread of the Chinese coronavirus, which has now claimed more than 900 lives to make it more deadly than the SARS outbreak of two decades ago. The economic impact of this epidemic could potentially be massive, which is why financial markets have traded as cautiously as they have in recent weeks. This weekend, however, the Chinese government announced authorities would make additional moves to bring the epidemic under control, with China's central bank set to provide the first batch of special re-lending funds for combating the coronavirus today. 

While the virus will likely remain an important driver of market sentiment in the week ahead, some focus will shift back to local developments given the chockful domestic data card. December manufacturing and retail sales data are due on Tuesday and Wednesday, respectively, followed by mining output data on Thursday. These readings are expected to be dismal, as December saw Eskom institute stage six load-shedding for the first time. There are also Q4 unemployment stats scheduled for release on Tuesday, which will serve as a reminder of how depressingly loose South Africa’s labour market is. Finally, President Cyril Ramaphosa will have an opportunity to provide the world with some insights into South Africa’s direction going forward on Thursday when he presents the 2020 State of the Nation Address (SONA), although, if previous years’ speeches are anything to go by, the presentation of a clear plan of action is unlikely.

Expected range for the day: 14.90 - 15.10