DAILY MARKET UPDATE - 10 NOVEMBER 2020 | Merchant West


Merchant West Capital Markets

USD/ZAR 15.4050 | EUR/ZAR 18.2267 | GBP/ZAR 20.3140

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Produced for Merchant West by ETM Analytics

Market Commentary:

Risk assets were already buoyed in intraday trade yesterday due to the market’s continued reaction to US election results, but the announcement of a highly effective vaccine by pharmaceutical company Pfizer provided a further boost as hopes grew for a quicker return to normality. Positive risk appetite allowed the ZAR to gain 1.6% against the US Dollar on the day, while the local unit’s topside tilt seemed to slow as it was largely range bound prior to the news. On a trade-weighted basis however, the USD cemented gains as it rose against the Euro and Pound, while risk on trade heavily impacted the haven Japanese yen as it fell 2% against the USD from last Friday’s close. As such, the US Dollar index (DXY) recouped some of last week’s losses as the market sees a relatively quicker economic recovery due to the vaccine, bringing into question the possibility of sooner interest rate hikes.

In stark contrast, the US Fed issued a reminder yesterday that the economy is far from being out of the woods, with households still struggling, while asset prices will remain volatile and subject to risk sentiment and outlook. As such, although vaccine development has been promising, we may still see loose monetary policy from the Fed for the next couple years at least and equally from central banks across the globe, especially with rising cases in Europe at present.

Locally, the virus’ resurgence is looking to be a major risk factor for Q4 as well. In his weekly address, President Ramaphosa issued a warning to South Africans to abide by public health guidelines, raising the possibility of harsher restrictions being announced in an address later this week. Meanwhile, the National Coronavirus Command Council is meeting this week to consider reimposing measures to contain the spread of infections. While lockdowns and associated restrictions are unaffordable the world over as global debt levels continue to rise, they are even more disastrous for smaller developing countries. Thus it remains to be seen the precautions the government will take to control the spread, but a second wave will dampen any nascent economic rebound regardless.

For the day thus far, further topside moves for emerging market currencies have been muted while Asian equities are playing catch from yesterday’s vaccine development. The ZAR is trading above yesterday’s close at 15.40/$ at the time of writing and will have to fend off the September manufacturing production data print later today which is expected to show a slowing recovery in the sector even though lockdown restrictions have been relaxed. Externally, the Eurozone ZEW economic sentiment indicator may provide the majority of market direction, with further downside expected as more nations adopt tougher measures to contain the virus.

Expected range for the day: 15.2100 - 15.5130