DAILY MARKET UPDATE - 11 SEPTEMBER 2019
Merchant West Capital Markets
USD/ZAR 14.6625 | EUR/ZAR 16.1842 | GBP/ZAR 18.0925
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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
Moody’s held a conference yesterday, discussing South Africa’s economic outlook. While the agency offered little new to what could be determined from price action in the market, its comments have generated headlines such as “SA safe from a Moody’s downgrade — for now” in the news. This will support SA sentiment, and combined with improved risk appetite, is a contributing reason for the rand breaking stronger against a technical level yesterday. However, much of the “for now” part hinges on the uncertainty concerning Finance Minister Mboweni’s abilities to implement fiscal reforms. That Mboweni has challenged many paradigms in recent months suggests that there could be some significant shifts in government thinking on route, which may be sufficient to tip the tide in favour of SA, although it will not be without some push back from the likes of labour or the SACP.
That civil society including the disenfranchised poor and business leaders is protesting is also encouraging, and one hopes that this drives home the point that there is limited patience within society for the stalling of reforms. Slow rates of business investment, high levels of skilled emigration and falling tax intake also suggest that bold and sweeping changes are needed, and that in the absence of these necessary reforms, the government is steering the country towards a fiscal cliff.
Against this backdrop, October's Medium-Term Expenditure Framework will be looked to as a key event where government has the opportunity to articulate the potential for reforms, which will need to include plans for the rolling up of SOE debt on to the government balance sheet and ways to curtail expenditure. Failure to do so could even lead the very patient Moody’s to downgrade SA too. South Africa’s bond market, particularly when priced in dollars, has been trading as though junk status is a given.
There has been a clear outperformance in the rand this week so far, which now sits below its 50-session moving average for the first time since the end of July in trading around 14.62/63 at writing. The pair has also broken below Fibo support at 14.67/68, which was the 50% retrace of the July-August rand sell off that led the rand from 13.85 to test 15.50. Focus will continue to turn to market positioning given just how bearish it has been towards ZAR in recent months, the Moody's statement in the context of the discount that the ZAR has been trading at and further offshore developments that have resulted in improved risk appetite. For now, traders look more likely to seek levels to sell USD upticks and may continue to trade off a short USD base.
Range for the day: 14.50 - 14.80