#JunkStatus, Downgrades, Protests, #ZumaMustFall, and more…
....just another week of South African politics and economics.
There was no lack of action this week, and the retaliation from Zuma’s actions reached a record high, with protests & demonstrations threatening his position.
His firing of finance minister Gordhan, and the cabinet reshuffle has sent South Africa - and the Rand - into turmoil.
This ‘attack’ against South Africa brought a lot more controversy than he would have liked…
But once again, it seemed as if attempts to remove him from office have failed.
So… What is the Future for the Rand?
If you have not already signed up, we are doing a webinar tomorrow evening at 19:00 to discuss this topic - you can sign up here:
https://attendee.gotowebinar.com/register/6996262138545225475
We will see you there!
But for now, let us review this previous week...
How It Happened (3-7 Apr 2017) |
Monday.
A fresh start after a rollicking previous week.
With a Zuma-firing-finance-minister-Gordhan size hangover, the Rand woke up this week after closing the previous one over 100c weaker from its record level of 12.30 to the greenback.
AND...all signs pointed to further trouble ahead.
And from the outset, the Rand was already weakening.
By the time our forecast was published at 8am, the market was sitting at R13.40/$...
...and not for the first time in the past couple of weeks, the outlook did not make pretty reading…
A target area of 13.64-14.08 was expected within the next few days, which was not something that most persons wanted to see. An already reeling Rand from the previous week’s body blows did not want more of the same treatment...
Click to enlargeAnd right on cue, the Rand took action in line with our forecast… 😉
With all the volatility and worry surrounding the markets, the economy, the presidency and who knows what else, the Rand had another crash…
In just a few hours, we saw the Rand lose almost 30c, as it weakened right into our target area…!
However, this time the Rand turned the other way and strengthened over 20c!
Such volatility leaves poor investors tearing their hair out, and it was no surprise when the news hit on Monday…
It had happened....
S&P sighted 'the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes'.
The Rand didn’t like this news - expectedly.
Stopping in its tracks, it turned for the 3rd time in the day, and went into freefall (upwards) and lost over 20c in 1 hour!
The inevitable had happened. South Africa was officially Junk Status, although most knew exactly what was coming anyway…
Although inevitable, South Africa would have loved one last round of respite...
....but it was not to be and it was looking like this week was going to take a similar trend to the last, as we moved on to Tuesday.
At 8am, the Rand sat perched at R13.79, right in the middle of our target area from the previous morning.
What did the markets have in store for us today?
Initially, it seemed like more of the same!
In no time the Rand was over R13.80 to the Dollar (150c from where it was 8 days before) and was still going strong!
It just kept plundering onwards…
...13.85
...13.90
...13.94
And then, after 164c of volatile weakening over the previous week, it seemed as if the markets had had enough.
Ker-pow!
With seemingly no reason whatsoever for the market to strengthen, it did.
An attempt at removing Zuma?
Surely that was not enough to force the markets into a 40c strengthening in one day?!
I think most people would agree, that it is just impossible.
Well… it could have been a wide combination of things.
However, to put it in a nutshell: it was the sentiment.
As per our Elliottwave forecast from the day before, where has said it was going to move into the 13.64-14.08 area before topping out, it did exactly that.
Showing once again that Elliott Wave tracks human sentiment, not news.
Speaking of news, awful pictures were distributed around the world on Tuesday, showing the inhumane bombing of Syria in a chemical attacking, killing many persons including many young children…
...this was surely going to cause some rumblings around the world - and be a significant test of Trump's 'America First' policy.
Onwards to Wednesday.
The Rand had levelled out at a more relaxed pace around R13.60 to the US Dollar by 8am.
Economists claimed that “The Rand had recovered driven by favourable global environment, with the flood of money managing to limit losses”...
Very few, including us, were of the same opinion...but that is what the masses are lead to believe!
Calls for Zuma’s head had been ringing around the whole week, and murmurings were becoming plans that the 7th of March was going to be #SAUnites day where a large chunk of businesses would close, and the people would rush to the streets in protest…
Once again, where is the positivity in this? A country in turmoil, amidst disaster after disaster?
I think the past 2 weeks have even been a lightbulb for us as to try to understand financial markets…
On the strength of all this, the Rand kept its trend of Tuesday afternoon, and kept strengthening.
It soon was under R13.50, and was still strengthening further…
Before it all changed.
Again.
As news hit that Zuma had somehow survived ANC's NWC crisis meeting to discuss the #CabinetReshuffle ...
...with a crash, and a flash, the Rand was back over R13.80.
Panic stations for many, as it felt as if the Rand was on a rollercoaster!
The ANC inner circle was apparently rallying behind Zuma and rallying hard…
That said, ANC Secretary General Gwede Mantashe looking rather dishevelled and out of place, towing the party line in full support for President Zuma.
However, his sudden turnaround from blasting Zuma for his decision regarding the Cabinet Reshuffle, was not fooling anyone…
...we all know it already, but there are clearly some nefarious goings on in the background to the political landscape that the public gets to see...
So running into Thursday, the market was looking as choppy as Nelson Mandela Bay after 3 days of howling wind...
And it was also time for our next forecast. It showed the Rand sitting at a level of R13.83, and the market looking toppish. There was still a chance of some more gas in the tank, but the target area for it to top out was 13.77-14.18, meaning a topping out was due soon...
Click to enlargeAnd after almost two weeks of frantic jumping to-and-fro, the market finally seemed to be settling, albeit in a very choppy manner.
For the duration of Thursday and most of Friday, the market had little to no trend besides a sideways one.
However, on other continents, there was a lot going on…
The rumblings had become actions…
...as President Trump made his first BIG international move as president, calling a US missile attack in Syria to counter the awful chemical warfare from earlier in the week...
In a show of strength, the US launched 59 Tomahawk missiles into Syria, sending a clear signal to Syria - and to its ally Russia - that Trump is not going to be the lame duck President that Obama was.
All events like these are connected with the sentiment that surrounds financial markets... they create the ebb and flow which the Elliottwave Principle has an almost uncanny ability to predict.
Friday brought more of the same undecided choppiness of the markets… but it was sure jam packed with action!
On the South Africa side, it began with the #SAUnites #ZumaMustFall marches, which ranged from one end of the country to the other.
Violence, anger and unhappiness marked the day as emotions continued to bubble over…
On the American side, tensions between the USA and Russia were reaching a climax with Trump’s decision to order the Syrian strike… Russian President Putin condemned his decision, saying it was a “significant blow” to Russian-US relations, but this did not seem to deter Trump.
On top of all this, the US Jobs numbers came through at a pitiful level - their worst unemployment level in 10 years...
And then, to crown of a disaster of a week, Moody's followed S&P by announcing a downgrade of South Africa's credit rating to #JunkStatus...
Somehow, through all of this, the market retained some level of stability - keeping steady from Thursday through to the end of the Friday, despite the odd blip.
It had been another worrying week...one which left doubts in persons minds…
This is still the burning question.
And just another reminder to join us tomorrow night to discuss it in our live webinar: https://attendee.gotowebinar.com/register/6996262138545225475
The Week Ahead (10-14 Apr 2017) |
Phew.
We are still needing to catch our breath after last week before looking into the coming one.
It certainly does not feel like the ZAR Rollercoaster is anywhere close to slowing down. There are a number of curves, dips, turns and surprises lined up in the coming days, weeks, months and years.
Conventional wisdom and logic would say so...
...but financial markets are not driven by conventional wisdom.
Nothing is simple.
Nothing is logical.
In fact, they could not possibly be any more illogical. Which is why emotion is your enemy.
If you think that something is going to go wrong at a point in time, your emotions are going to be affected by that, causing you to make a decision based on that.
When it comes to financial markets, there is a need to convince your brain to think differently to basic logic, and to COMPLETELY ignore emotion - as difficult as this is!
These are all parts of the game which make what it is…
So as we stare upward out of the black hole of economic destruction that South Africa is lying in, is there light somewhere at the end of the tunnel?
Only time will tell…
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To your success~
James Paynter
