DAILY MARKET UPDATE - 10 OCTOBER 2019 | Merchant West

DAILY MARKET UPDATE - 10 OCTOBER 2019

capital markets

Merchant West Capital Markets

USD/ZAR 15.1425 | EUR/ZAR 16.6309 | GBP/ZAR 18.5065

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email: treasury@merchantwest.co.za

Market Commentary:

South Africa’s structural reform narrative got a boost yesterday with South African President Ramaphosa putting his political weight behind National Treasury’s reform plan. Ramaphosa is quoted in the Business Day this morning as saying at the first meeting of the newly established economic advisory council that “Much work is being done to improve confidence and regain credibility and trust by implementing those reforms that already enjoy support and have been under discussion for some time.” Interesting to note that Chinese news agency Xinhua has also reported on the story, highlighting the appointment of the economic advisory council as an attempt at restoring confidence in the economy. In the report, Ramaphosa is quoted as saying that "It is my hope that the council will direct its efforts towards practical solutions to the complex and pressing challenges our economy faces."

In addition, National Treasury released the terms by which Eskom will be recapitalised, with a total of R59bn set aside to support the repayment of debt and interest payments over 2019/2020. Eskom will be subject to regular daily liquidity reporting, while the pressure is also on management to recover more than R100mn in outstanding debt and stabilise finances in other ways. Executive bonus payouts are first and foremost contingent on meeting financial objectives. Ramaphosa is quoted as saying that the Eskom turnaround strategy “is a very important exercise because it consolidates all the work by Eskom’s board and management, government departments and the various task teams advising the government to turn around our electricity entity and to reform energy markets.”

Whether the efforts result in a lower cost and more stable supply of electricity is key here, and until government finances meaningfully recover, investors could well remain cautious on SA exposed investments. With that said, there is some solace to be taken from the fact that SACCI data showed that business confidence surprisingly rebounded in September, which may be taken by some as a sign that the bearish sentiment to South Africa could be bottoming out as the government makes intimations of fiscal turnaround.

The domestic data card heats up today with mining and manufacturing sector data will hold significance in assessing productive sector growth in Q3, or the lack thereof. PMI data has pointed to continued weakness. Externally, there may be some interesting reading in the ECB account of the last monetary policy meeting, where outgoing Draghi laid down guidance for further policy easing. US CPI data will meanwhile drive market positioning into the US session, alongside US-China trade negotiations and Brexit politics.

USD-ZAR is entrenching a 15.00-15.40 trading range against this backdrop, with a consolidative tone likely to remain in place until the market has a line of sight on fiscal reform on 30 October.

Range for the day: 15.00 - 15.30