A topsy-turvy week for the Rand saw a break back over R14.50 to the Dollar...
There was plenty happening, with local politics and as well as global economic and political tension.
Eventually, the Rand pulled back to around to where it opened.
But it had been quite a week - and plenty for us to review in it.
Let's get right into it...
Here are some of the biggest headlines for the week:
- Dust settles after elections - this is where and when Ramaphosa and colleagues need to deliver on promises, and fast...but has anything really changed?
- Brexit - Theresa May's position was hanging by a thread, and the UK waiting and watching as the next stage of the 'soap opera' unfolds! On Friday, the finale unfolded...
- Trade War - emerging markets remain unstable in the wake of the US/China trade spat, with things seemingly kicking up a notch day by day...
- Eskom - the thorn in the side of the ANC is still keeping everyone in the dark as to where it stands in terms of debt and future energy stability
The Rand opened the week a little unsteady, along with other emerging and global markets, caught in the wake of the US/China Trade war, opening around R14.40 to the Dollar, as a late week collapse had seen it lose 30c going into the weekend.
All eyes were on President Ramaphosa as the dust settled after the election, and expectations were for all of the promises over the last few months to come into reality.
Of the many things needed, these were surely the highest on his priority list:
- Stabilize Eskom debt and other SOEs. Clarity is needed here for global investors.
- Ensure energy production is sufficient for SA going forward, as this is crippling to the economy.
- Stimulus package implementation and job creation - essential for the economy to get kickstarted to grow GDP in Q3/Q4 of 2019
- With regard to the first, investors are becoming increasingly edgy due to the lack of communication from Eskom - what was actually happening? Is energy production stable? Is Eskom going to recover cash owed by municipalities before requesting further debt assistance? How are they going to manage without having a plan for getting rid of old coal stations?
All these questions are up in the air...an increasing headache for Ramaphosa...
But something he can do little about is the global tension - Theresa May's position as Prime Minister is hanging by a thread, as all eyes were on whether she would resign.
We are now 3 years from when Brexit began, as well as 2 postponements and 3 rejected proposals later...when was enough going to be enough?
Theresa May set out a series of changes she said she was willing to make to her Brexit deal – including the offer of a vote on a potential second referendum.
But with this all was failing to ease the increasing pressure to resign, it seemed the end was surely nigh...which could provide repercussions for the Pound and markets generally.
Moving on to the US/China Trade War, this has certainly been an ongoing point of contention for the Rand and emerging markets..
Things have not quite been the same since Trump's tweet, as the ping-pong of threats has continued. The US has blacklisted Huawei, which has infuriated China, and potentially taken a huge chunk of Huawei's business away.
And Emerging Markets have been sideswiped by this...
Rightly named a "Bloodbath", has seen a collapse of all but one of emerging markets in but a few days...!
This situation could literally change at any moment, so we will continue to watch with interest as it all plays out...
...the more Trump tweets, the more the markets seem to react!
Wednesday & Thursday were busy:
- SA's inflation came in slightly better than anticipated, down 0.1%...this despite rising fuel and food prices, and meant that SARB managed to keep it in that 3-6% band that they were hoping for.
- Ramaphosa’s first parliamentary sitting sparked some hope for the country, as old ANC “cronies” cowered and withdrew from the candidates list.
- US Fed minutes pointed to patience before another interest rate adjustment but markets are already pricing in a 50% chance of a cut in October.
- The Reserve Bank kept the repo rate unchanged at 6.75% as expected.
- The Rand initially did not take kindly to all of this noise and activity, as it spiked over R14.50, touching a high of R14.53...
...however without too much momentum behind the move, it topped out there, as can be seen below:
And then the finale for the week on Friday:
Theresa May FINALLY realized that it was time for her to go, and resigned as Prime Minister.
This is has been scripted months ago already, and was all too obvious that it was going to happen - to all except her it seems.
And eventually, her frustration and the pressure of the situation became too much, and she pulled the plug. The reigns are to be handed over to someone else to try and force the issue with Brexit.
So, the mess continues... what next for Brexit and the EU?
The Pound was a little choppy Friday in amongst all the latest developments, but overall held steady.
At the SA market close on Friday, we saw the USDZAR at R14.42, EURZAR at R16.16 and GBPZAR at R18.31...
The Week Ahead (27-31 May 2019)
Monday has seen the market edge up on a week that does not have much going for it in terms of economic events, especially with the US kicking off their summer holiday with Memorial Day.
Of course, that does not mean the Rand is expected to meander, with all eyes being on how things pan out this week locally and internationally with:
- Ramaphosa's cabinet announcements
- The next cards played in the US/China Trade War
- The direction the UK takes with Brexit post-Theresa May
But once again, we will be looking at the patterns of sentiment instead of the news to give us direction, as we monitor closely how the market progresses to confirm (or negate) the current preferred short to medium-term wave counts and predictions.
Why not join us today as we do so.
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To your success~