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Daily Dose

22 February 2019

Good Morning,

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On the wires

International:

  • Japanese space probe touches down on asteroid to collect samples
  • Tesla starts Model 3 delivery in China earlier than expected
  • North Korea warns of food crisis, slashes rations before next leaders' summit
  • Aussie dollar falls on reported coal ban from China
  • Arsenal thump BATE to reach Europa League last 16

Local:

  • Students barred from protesting at DUT campuses
  • DA says Free State the 'biggest' Eskom defaulter with R5bn bill
  • SARS gears up for a major clampdown on tax evaders
  • Actor robbed in church parking lot
  • Springbok scrumhalf to quit Stade Francais to farm in South Africa

Fun Friday

Currency Crackdown

Yesterday, the rand took a breather after a hectic trading week. In light trade, we saw the rand trade in a 13.88- 14.06 range. Below 14.00, the market scared many rand bears (rather than broad $ bulls) out of their long $ positions, and we saw a good rally to just below the 13.90 level. The market has corrected slightly higher, as the Finance Ministry engages in “difficult” discussions with the 3 main rating agencies. This will be followed by a London roadshow next week, to engage with the same agencies and international investors. Eskom remains the issue, and I am uncertain whether the ministry will be able to convince their audience on the final Eskom funding requirement? The “bailout” is only to keep Eskom afloat, and we are not able to understand, at this point, what the ageing infrastructure is going to require, going forward. With the lowering of SA growth forecasts, I think we are already in a fight that assumes that Eskom will be able to continue operating. Any further downtime will only drive any isolated rating agency optimism, through the floorboards.

Other indicators: US equity markets were lower, while Asian shares are flat this morning. This on the back of global growth concerns and a lack of progress on US/ China trade talks. US 10 Treasury yields are slightly higher, while the local R186 yield is exactly the same as this time yesterday. The EURUSD pairing has not moved, the $ index is the same as yesterday, but gold is lower. Brent is unchanged and remains uncomfortably high. There are no clues from the lead indicators, so we will have to rely on trade talk developments, continued Brexit negotiations or the Fed speakers to lead markets again. Local concerns remain, but the international search for higher yielding assets might cap any currency or bond market moves higher. It is important to note that Fitch mentioned yesterday, that the UK might be in line for a ratings downgrade, on the back of poor economic performance (in last quarter slowest growth rate in 6 years) and the potential impact of a hard Brexit, or a deal that hurts the economy. The GBP woes might not be over just yet? It does seem more and more likely that Brexit will be delayed.

There are some data releases, as well as ECB and Fed speakers today. Anything can happen and being Friday, we always need to be cautious as liquidity tends to disappear. After this volatile week, use the opportunity to review pricing models and establish execution levels.

What to look out for today?

  • EU – Inflation Rate
  • EU – ECB President Draghi Speech
  • GE – German GDP
  • US – Various Fed Member Speeches
  • US – US/China trade talks continue
  • US – Monetary Policy Report

Did you know?

Caterpillars have more muscles than humans.

 

Have a super weekend

FXOne Team

 

 

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