DAILY MARKET UPDATE - 14 FEBRUARY 2020 | Merchant West


Merchant West Capital Markets

USD/ZAR 14.905 | EUR/ZAR 16.1398 | GBP/ZAR 19.4346

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Produced for Merchant West by ETM Analytics

Market Commentary:

Even though opposition lawmakers attempted to steal the show, all eyes were on President Cyril Ramaphosa yesterday as he addressed more than just the nation during his State of the Nation Address (SONA). While using the platform to defend his ambitious investment drive, the president also spoke about plans to tackle South Africa’s record-high youth unemployment rate, power generation problems, and the government’s unsustainable debt trajectory. He also announced that the government would establish a state bank and sovereign wealth fund and move ahead with land expropriation without compensation (EWC).  
President Ramaphosa’s six-pronged plan to fight youth unemployment offered preciously few new initiatives that have not been tabled in the past, while details regarding the establishment of a state bank and sovereign wealth fund, as well as any discussion over how government plans to deal with its fiscal problems, were largely deferred to Finance Minister Tito Mboweni’s budget speech later this month. As for EWC, Ramaphosa essentially aimed to calm investors by saying that government was ready to table a bill outlining the circumstances under which expropriation of land without compensation would be permissible, yet some scepticism remains warranted. 
The most notable takeaway from the president’s speech, however, was his announcement of some sweeping changes to South Africa’s electricity industry, aimed at addressing energy shortages and reducing reliance on ailing state power utility Eskom. President Ramaphosa announced government would take up measures to "rapidly and significantly" increase generation capacity outside of Eskom, including making it easier for independent producers to get certified to build and run plants with output above 1MW. Furthermore, independent producers will also be permitted to sell their output directly to municipalities "in good financial standing", which could reduce load-shedding in certain jurisdictions. Although details regarding these reforms remain sparse, the government does appear to be moving towards more market-friendly thinking.

That being said, the state’s political will and ability to implement these reforms is always questionable. It is for this reason that the ZAR barely reacted to the president’s speech, closing yesterday 0.45% in the red and starting today’s trade on the defensive. Broader risk sentiment remains fragile at present due to the ongoing coronavirus epidemic, with market focus likely to shift to a chockfull US data card in the session ahead. 

Expected range for the day: 14.85 - 15.05