DAILY MARKET UPDATE - 12 FEBRUARY 2020 | Merchant West

DAILY MARKET UPDATE - 12 FEBRUARY 2020

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Merchant West Capital Markets

USD/ZAR 14.793 | EUR/ZAR 16.1390 | GBP/ZAR 19.1637

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email: treasury@merchantwest.co.za

Produced for Merchant West by ETM Analytics

Market Commentary:

The rand appreciated gradually throughout yesterday’s session despite weak domestic data, closing 1.30% in the green at around 14.82/$. The local unit’s advance was the biggest of any emerging market currency on the day and was driven by a broad-based improvement in market risk appetite amid hopes that the worst of the Chinese coronavirus may have passed. This followed comments by China’s senior medical adviser on the outbreak, Zhong Nanshan, who said the number of new cases was falling and that the epidemic would likely peak this month. The situation remains highly fluid and uncertain, however, evidenced by the fact that many international experts displayed scepticism towards Zhong’s comments and remain alarmed by the spread of the virus, which has now claimed more than 1,100 lives.  

Domestically, the impact of load-shedding on the South Africa economy was clear to see in yesterday’s two data releases, although the market appeared to pay little attention as this is already widely known. The official unemployment rate remained unchanged at 29.1% in Q4 of last year after reaching an 11-year high in Q3, marking the first time in 11 years that the unemployment rate didn’t fall in the fourth quarter. Manufacturing production growth, meanwhile, disappointed with a -5.9% y/y contraction in December, falling from an upwardly-revised -3.2% y/y reading in November. This was the sector’s seventh consecutive contractionary reading, and also the steepest fall since July 2014. Looking ahead, the scope for the economy to rebound in any significant manner remains limited by load-shedding, delays in the implementation of much-needed structural reforms, weak domestic demand dynamics, and depressed business confidence.  

Focus will now shift to the December retail sales data slated for release today. While retail sales growth rebounded notably in November, it was driven primarily by a seasonal spike linked to Black Friday specials. Looking beyond this, the broader performance of the retail sector remains fairly weak, with low levels of consumer confidence and ever-tightening household budgets weighing heavily on demand. While the data may provide some interesting insights into South Africa’s real economy, much of the market’s focus will likely remain on external developments such as coronavirus-related news flow. Furthermore, President Cyril Ramaphosa’s upcoming State of the Nation Address (SONA) on Thursday will likely also take up some more space on traders’ radars today, which could see some of them opt for the side-lines.

Expected range for the day:14.70 - 14.90