markets commentary

Merchant West Capital Markets

USD/ZAR 15.0475 | EUR/ZAR 16.4210 | GBP/ZAR 18.5436

Please feel free to contact us on the details below:

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

email: treasury@merchantwest.co.za

Market Commentary:

On the international front, newsflow was awash with developments surrounding the ongoing Trump impeachment saga, as the whistleblower report was released yesterday and accused Trump of abusing his position of power. The report also accused the White House of trying to cover it up by hiding sensitive information relating to the call between Trump and the Ukrainian President. Whether this has any chance of progressing to impeachment is debatable at the moment, however, it has still impacted negatively on sentiment and will impact negatively on financial markets as it drags on.

There was some interesting reading in the South African non-farm payrolls data yesterday, which beat expectations to show 1.4% y/y growth in the number of jobs. However, a closer look at the details showed that this was mostly on account of 44,000 new jobs added in the community services sector, a proxy for government employment. Note that part-time employment rose over 24,000 jobs yet total employment still fell by over 2000 jobs. The temporary jobs can primarily be attributed to the May general elections, while employment by government in itself will continue to put pressure on government finances.

When stripping out government employment, the total number of jobs suffered the biggest contraction since 2009, reflecting the structural strain that South Africa finds itself under. Weak employment dynamics suggest that the downward pressure on tax intake will continue in the medium term, underscoring high government fiscal risks in the absence of spending cuts that could lead to an even wider deficit than currently expected.

The USD-ZAR remains strung between weak domestic and trade fundamentals, and the spectre of looser policy in systemically significant central banks such as those of the US, Eurozone, China and Australia. Weak Chinese data released overnight has taken the shine off of Australian stocks overnight, which bodes ill for the rand into local open today. The USD-ZAR pair is, however, showing weak upside momentum although the break north of 15.00 will be psychologically significant for the bulls. With the USD itself on the front foot however, the risks are tilted in favour of further USD-ZAR gains into the weekend.

Range for the day: 15.00 - 15.20