There always seems to be over-confidence and complacency, particularly in markets & economics, before disaster strikes.
... a relaxed care-free atmosphere, as if there is no danger at all.
And then suddenly things change.
A BIG shock...
...and attempts to rationalize what has happened.
This is just what happened this last week, as economists and leaders alike were shocked at inflation data coming out of the USA.
Blitzing through records not seen tested for decades, inflation has begun to move from a slow walk to a canter.
And that's not to say it cannot speed up further.
Some of the biggest inflated prices are not even included in the figures released, such as lumber...
As for the Rand, the uncertainty with these numbers certainly gave it a jolt.
But let's get into the full review to see what we can find out about the days ahead...
To get started, here were the biggest headlines from the 5 days:
- Inflation Shock - the US inflation results are going to have a material effect on the whole world...what is coming next?
- Israel-Hamas Conflict - the tinderbox is going up in smoke, as the tensions that have been waiting to bubble over went to another level in the war-stricken areas around Jerusalem.
- Moody's Review - the long-awaited review of South Africa's credit rating was due...but it seems we will have to wait some more
- Petrol Shortage - in the age of cyberattacks, no one is safe, as half of the East coast of the US went into panic buying fuel after the Colonial Pipeline got hacked.
As we began the week with the Rand opening just a tad over R14, the world was still in shock over the US Non-Farm Payrolls that had come in the week before on Friday.
A miss of 266k jobs created vs the 978k expected meant a massive miscalculation - bringing worry to economists of whether the expected recovery was realistic.
The unemployment rate also took a step in the wrong direction, increasing to 6.1% (5.8% expected).
These weekly ‘free’ cheques have become a curse rather than a solution, with little incentive to get back to work!
So with the wind in it's sails, the Rand was hoping to make further inroads...
And so it did, until we got to Wednesday, with the Rand trading as low as R13.94...
For once, it seemed as if all the action and controversy was not on local shores, but globally.
Over in the US, it was panic stations as most of the East Coast's fuel just stopped, following a cyberattack on the Colonial pipeline which stretches from New York area down into Texas.
Over the weekend, cyberhacker group DarkSide infiltrated their systems and shutdown the pipeline, throwing the supply chain for fuel into disarray, and only made worse by panic buying by locals in fear of it running out.
A ransom of between $4-5 million later, the pipeline was operational by later in the week...but the damage had been done, and supply issues will persist for a few weeks to come.
Then you had Israel and Palestine on the verge of official war… tensions escalated as the week went on, with Palestine and specifically the Hamas group shooting more than 1050 missiles into Israel in less than 40 hours. Israel's 'Iron Dome' was working double time to stop destruction, and they retaliated with significant attacks of their own. Ground troops began to build on the border by Thursday, as a ground war/invasion became a reality.
Biden's leadership has been severely lacking already...and suddenly it was a combination of foreign and domestic terror attacks.
How will he respond?
To make matters worse, on Wednesday we had the inflation figures come out - and wow, did they shock economists!
The print showed that core prices rose 0.9% compared to March (the biggest monthly increase since 1982) and 3% year-on-year (a 25-year high).
This figure also doesn't even take into account huge increases in material such as lumber, which is up 100s of percent higher in price than just a year ago.
All of this going on was trigger after trigger or market activity...
But overall the Rand did not fair too badly.
Following the inflation news, the market weakened through to closing R14.20, as markets far and wide were spooked by the shock figures.
The NASDAQ, SP500 and DOW all suffered huge losses, as the news shook the markets up.
And then in other news...
- Moody's has not been too kind to SA in recent years with credit ratings, and it seems that it is going to be a while yet before things get better. Moody's was due for a rating review of SA, but ended up skipping it which now puts the next date as November before there can be any hope of improvement in the ratings… can government expenditure and some SOEs be fixed before then?
- Producer Price Indexes came in on Thursday after the CPI, and showed a very similar picture with a spike of 6.2% in the previous 12 months. Inflation has arrived and it is very real…
- Bitcoin and crypto markets in general took a massive sell-off during the week following Elon Musk saying Tesla will no longer accept Bitcoin as a means of a payment due to the excessive energy usage. As always, it is worth reminding yourself that this was NOT what moved the markets - but a trigger for the underlying market activity. Elliott Wave patterns have said for weeks that we have been due a correction...it was just awaiting the right moment. For clear guidance on BTC, check out our forecasts over here...
And as we rolled into Friday, the local unit traded around R14.12 at the close.
The ZAR just continues to hold its ground despite every potential of it being tripped up...
...and lives to fight another week!
The Week Ahead (17-21 May 2021)
As we look to the week ahead, we have a have another fairly interesting schedule ahead of us in terms of events, and we will look to see what triggers the next Rand move...
Here are a few to watch out for:
- SA - Inflation Rate, Retail Sales, Interest Rates
- USA - FOMC Minutes
- UK & EU - Consumer Price Index, Unemployment Rate
But there is a lot more going on apart from this, with increased tensions aplenty in social, political and financial arenas globally.
Once again, we will be keeping our eyes on what the Rand itself is telling us based on our Elliott Wave based forecasting system to give us some clues for the come days, weeks - and possibly months - ahead.
Please take our Rand forecasting service for a test-drive!
This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.
Simply use the link below to get access now. No charge. No card. All yours to trial 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~