Another week, another volatile 5 days!
Otherwise known as same old, same old when it comes the Rand...
It was another week of chaos and a sobering look at the effects of stopping a global economy for more than a month...
With the Rand maintaining its frenzied trading, there seemed to be no respite for businesses who were trying to plan around their forex exposures...
...while the lockdown period meant that many businesses were not working anyway, but the effects of a volatile and weaker Rand will nevertheless take its toll.
As reopening commences bit by bit across the world, we are wondering quite what type of a new world we will see...
...and for economies like South Africa's, what will be left as the pandemic leaves an already stuttering economy in tatters.
Let's get into the full review (to show how you could have had clarity for all that happened), and then we will look to the week ahead.
First things first, here was our forecast from Friday the 1st of May, giving our clients the outlook for the next few days.
The Rand was then trading at R18.82, and was due to top out in the short term in the target area of R18.73-19.10, before retracing down as low as the R18.30s and then spring-boarding back up again...(see below - click to enlarge)
I realize that is quite a complex forecast...but that is what the patterns were saying.
The fact is, markets are complex, and the Elliott Wave Principle is the best tool we know of that is able to provide some clarity amidst all the fog and the noise. It was certainly looking like it was going to be an interesting week.
Here were the biggest headlines from the 5 days:
- Shocking GDP prediction - a spine-chilling analysis showed South Africa's economy could contract by as much as 16.7% in 2020, despite the stimulus...
- US Jobless Rate - an explosion of unemployment has hit the US, with the official unemployment rate now over 14%...
- US-China tensions - blame games around the COVID-19 pandemic were now spilling over into Trade War news again, as the US threatened action should the current deal be ignored
- SA Bonds - despite being de-listed from the World Bond Index, we saw a significant interest in South African bonds
With the Rand opening the week over R18.80, many were watching to see if we would yet again have another push over R19, and then fears were of R20/$...
...as we showed with our analysis, the Elliott Wave Principle was saying otherwise.
And that was what we saw on Monday as the market turned and pushed lower to touch around R18.30 when Tuesday evening came around.
Some relief for importers and consumers...but as our forecast had said from Friday, we would then see the market bottom out, and head higher again.
Which is just what we saw over Wednesday/Thursday as the market pushed up to over R18.80 again!
The Rand rollercoaster was in full swing...
Now, the fact is that you would likely have read dozens of reasons from economists and Rand "experts" as to what had caused the Rand to first strengthen ... only to weaken again...
...be it Trade Wars, Covid-19, Junk status and bond de-listing etc, etc.
Now this all sounds very plausible...
...and, yes, it is true - big events do (sometimes) tend to trigger some large moves.
But that is all they are: Triggers...
And that, is why after-the-fact analysis is basically worthless to anyone - looking back when it is too late to do anything about it.
Because it is not these triggers that determine the direction, but the underlying mass sentiment at the time that will do so.
And that is what we focus on...
The Elliott Wave based analysis system we use is not perfect (show me a system that is), but it allows us to track human sentiment (the driver of all liquid markets), and give us an edge in the market as to where we can expect to go (a true direction-giver)...
Now, with that said, we can take a look into some of the events that did happen, because they are still helpful and important to get the scope of the global situation right now:
- In the midst of the week, we got a spine-chilling analysis from Business for South Africa. The warning from B4SA was that a GDP contraction 10-16.7% over the course of 2020 was quite possible. This would be truly devastating for any economy, let alone South Africa's - which if this were to happen, would be incredibly difficult to recoup the losses even if there were many years of growth in the future.
- The urgency for Ramaphosa to reopen the economy is growing every day, as the economy self-implodes while lockdown continues…with many questioning the reasons for the continued hard lockdown, the lack of transparency and legitimacy of the powers given to the National Coronavirus Command Council (NCCC).
- Zimbabwe was also on the ropes, with warnings of 20% GDP losses if there were no coronavirus aid being given, as the government pleaded with the IMF, World Bank and other international institutions for a bailout.
- And the effects were plain for all to see in other parts of the world, as we saw India estimating a loss of a mind boggling 122 million jobs. US Jobless claims hit well over 30 million following another 3+ million claims. The official unemployment rate for April was recorded at 14.7%! This after being at just 3.5% only a few months ago… There is also reports of it being closer to 20%, should all different forms of unemployment had been taken into consideration
- To make matters worse, tensions between the US and China have been rising, as the US continued to push China on why the coverup of the virus's beginning, methods of transmission and more had been hidden from the world. This then spilled over into the Trade War, as the US warned of consequences should China abandon the deal. Mnunchin, the Treasury Secretary said "I'm expecting them to meet their obligations." but then also said "...if they don't, there would be very significant consequences in the relationship and in the global economy as to how people would do business with them."
Trump also has not taken the idea off the table of penalizing China in a trade deal, in retaliation for their coverup of the Covid-19 virus… But next week, the US and Chinese are expected to meet for the next round of discussions.
- Back to SA, good news on the bond markets. There was robust demand for local bonds at its weekly JSE auction. Despite the prevailing fundamental risks, the All-Share Bond Index raked in R25 billion in total bids, staging a 16.5% recovery from last month’s lows. The rally could suggest that investors are still confident about the local bond market regardless of last week’s removal from the World Government Bond Index.
On the back of all this, we saw the Rand trade down as low as R18.29 on Friday evening, ending the week significantly stronger than it began...
...and that was the wrap!
The Week Ahead (11-15 May 2020)
Well, another week of lockdown dawns, with hopes that this forced hibernation is hopefully nearing an end...
Once again, expect more shocking data to come from economic releases, with continued volatility in financial markets, including the Rand.
As far as fundamental events go, there are a few to watch as potential triggers, with some of the more impactful being:
- SA - Unemployment Rate, Retail Sales
- US - Initial Jobless Claims, Retail Sales, FOMC Minutes
- UK - Gross Domestic Product (GDP)
- EU - ECB Interest Rate Decision, Consumer Price Index (CPI)
But once again, let me stress this - the above could well be triggers for a move (sometimes they do - sometimes they don't).
But that is all the are - simply triggers.
It is the patterns of sentiment at that point in time that give us the likely direction.
And that is what we will focus on - what the patterns are telling us - ahead of time...
...and we suggest you do the same.
To get a look at what charts we are looking at and using to give direction, use the link below to get access to the latest forecast. No charge. All yours for 14 days.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~