Weekly market brief - 26 October 2017

Currency Outlook

  • Global interest rates remain an important driver for the rand.
  • With concerns about the economy highlighted, potential ratings downgrades looming, together with uncertainty around the ANC conference in December, the rand is expected to remain under severe strain.
  • A close below R14.15 could see a retracement to R13.95. The rand touched a weakest level around R14.29 on Thursday and should it continue weaker, resistance comes in at R14.35, thereafter R14.50.

Local Data

  • Finance Minister Malusi Gigaba told parliament on Tuesday the main budget deficit in 2016/17 narrowed to 3.8% of gross domestic product from a previous estimate of 3.9% and would decrease further in coming years.
  • Producer price inflation rose to 5.2% y/y in September from 4.2% in August, above expectations of 4.9%.

Interest Rate Outlook

  • A weaker currency, along with comments made by the Reserve Banks deputy governor last week seem to have bolstered consensus that rates will not be cut this year.

International News

  • US: Durable goods orders rose 2.2% in September, the biggest gain in three months, led by a big increase in orders for commercial aircraft. Economists said the 2.2% rise in September orders, double what they had been expecting, was a good sign that the long-awaited rebound in manufacturing is on track, helped by an improving global economy.
  • EUR: The ECB left interest rates unchanged as expected and announced it would continue with its Asset Purchase Programme at the current monthly pace until the end of December 2017 but would start reducing asset purchases to 30 billion euro from 60 billion euros starting January while also extending the scheme by 9 months to September.

Precious Metals

  • Gold prices fell to $1 277/oz last week Friday after the US Senate approved a budget blueprint that paves the way for tax cuts, causing equities, bond yields and the dollar to rise.
  • The precious metal fell to $1 270.63/oz earlier this week amid speculation that the hawkish John Taylor may become the next Fed Chair.

Base Metals

  • 3m copper rose to $7 123/t on Tuesday on encouraging prospects for economic growth in China. China's economy will likely grow 6.8% in 2017, topping the state target and accelerating for the first time in seven years, a Reuters poll showed.
  • 3m nickel reached a six-week high of $12 165/t last week Friday on expectations of more future market deficits.

Oil

  • Brent traded above $58/bbl for most of the week on supply concerns in the Middle East and as the US market showed further signs of tightening.
  • Saudi Arabia's energy minister said the focus remained on reducing oil stocks in industrialised countries to their five-year average and raised the prospect of prolonged output restraint once an OPEC-led supply-cutting pact ends.