daily markets commentary

Merchant West Capital Markets

USD/ZAR 14.6750 | EUR/ZAR 16.1428 | GBP/ZAR 18.0757

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JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

Market Data:

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 

Market Commentary:

Global market risk appetite seems to be improving, following the news that China and the US are striking a more concessionary tone. Beijing has exempted some US imports from tariffs, and the US has delayed the latest round of tariffs that are set to take effect in October by two weeks. This speaks to an effort of goodwill ahead of the next round of talks, suggesting that common ground could be sought, and perhaps also cognisance of the negative growth risks being generated from associated uncertainties.

From a domestic perspective, the weak growth theme remains in place, with business confidence metrics hitting their worst levels since the 1980s in data releases yesterday, which was a period of divestment in South Africa. This underscores the many threats facing the nation that clearly needs radical reform that prioritises growth over populism and a stern hand in dealing with corrupt practise in government. Fiscal risks remain the biggest single risk for the rand at this stage, given the high degree of foreign ownership of government bonds. The country is however fortunate that there is not a high degree of foreign-currency denominated debt in issuance as this mitigates feedback loops where currency weakness can exacerbate refunding issues by raising the cost of repayments each time the currency weakens.

ZAR View: The improved tone in risk appetite nevertheless bodes well for rand heading into the local open, where some could be considering the scope for further rand appreciation beyond the USD-ZAR lows tested this week. The pair managed to break below its 50-session moving average this week as well as the 50% retrace level of the 13.85-15.50 move, which does point to the potential for greater recovery back towards the 13.85 region, although this would likely need to be generated in a far more favourable environment. That market internals such as implied volatility (and indeed the ZAR sentiment index) point to a moderating outlook for currency risk also back up the improved tone in the spot market.

Range for the day: 14.50 - 14.80