DAILY MARKET UPDATE - 11 FEBRUARY 2020 | Merchant West

DAILY MARKET UPDATE - 11 FEBRUARY 2020

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Merchant West Capital Markets

USD/ZAR 14.956 | EUR/ZAR 16.3158 | GBP/ZAR 19.3141

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Produced for Merchant West by ETM Analytics

Market Commentary:

The ZAR started the week off on the front foot, appreciating 0.30% to close at 15.01/$ despite cautious trading conditions. Much of this advance can be attributed to the People’s Bank of China (PBoC) moving to support the world’s second-biggest economy amid the ongoing coronavirus fallout by flushing it with liquidity, in turn supporting China-sensitive currencies such as the rand. At the same time, the local unit likely also benefitted from some profit-taking following last week’s dismal performance. Today’s early trade has seen yesterday’s advance continue, with the rand breaking below the 15.00/$ handle amid a broader wave of green for the emerging market (EM) currency basket. Whether this momentum can be sustained throughout the session, however, is largely dependent on today’s domestic data releases.  

First up for release today will be the Q4 unemployment rate, which will likely serve as a reminder of how depressingly loose South Africa’s labour market is. The consensus expectation is for an unchanged reading of 29.10%, which was South Africa’s highest unemployment rate in over 16 years back in Q319. These extreme levels of unemployment highlight the structural degradation that has taken place in South Africa in recent years, and pose a notable risk to the already-ailing fiscus given the implications thereof for tax intake. Manufacturing output growth stats for December will then steal the market’s focus, and will likely reflect the sector’s biggest contraction in over two years with a -3.9% y/y reading, according to the Bloomberg consensus expectation. Recall that December was the month manufacturers had to contend with stage six load-shedding, with the impact of this likely to be reflected in the data.

The broader trend is also concerning, as the sector contracted for six consecutive months prior to December due to persistent power outages, falling business confidence, and depressed domestic and external demand. Given that none of these headwinds have been addressed, room for the manufacturing sector to rebound remains limited going forward. 

Looking externally, the coronavirus epidemic will likely remain front and centre in determining broader market sentiment. The virus’s death toll soared past 1,000 yesterday with a record daily rise in fatalities. Furthermore, the World Health Organisation (WHO) cautioned that the spread of cases outside of China could be “the spark that becomes a bigger fire”, with certain instances of the virus being spread from people with no travel history to China, suggesting that the transmission of the disease is expanding.

Expected range for the day: 14.85 - 14.95