Well, what a week...!
The Rand was back to its volatile best ... if you can call it that...
...we saw huge spikes, as the market whipsawed dramatically many times during the week - bouncing up close to R15/$ before making a healthy late-week correction.
It was also wild week of events, both globally and locally, meaning there is plenty to review over the course of the 5 days.
Let's get into the full review...
Here are some of big headliners from the week -
- Ramaphosa's cabinet - the highly anticipated announcement arrived, and all eyes were on whether expectations of a reduced and improved cabinet would be fulfilled...
- Trade war goes global - until now, it has mostly only been the US versus China...this changed in a blink of an eye this week!
- Inflation under control - SARB made some very positive comments regarding SA's inflation, with hope that things are stabilizing going forward
- Eskom bailout risks - a real assessment of the damages should SA bail Eskom out again is being taken, as this would be a massive outlay of capital
First things first on the review...the Rand opened on Monday morning, trading calmly on the US Bank Holiday, with a small range for the day keeping us waiting for Tuesday.
And wow, did things get moving on Tuesday!
The market crashed 30c in about 8 hours, to hit R14.74 to the dollar!
And this was before the real action of the week even began!
On Tuesday evening, Ramaphosa's cabinet announcement finally arrived. And overall, it was a bit of a mixed bag...
His “reduced” team (63 ministers down from 72) consists of some new faces, old faces in new jobs and ministers who have remained in their previous positions. The big shocker of the evening was the President’s appointment of the Cape’s “Aunty Pat” (Patricia de Lille of the GOOD party) as minister of public works and infrastructure.
Pravin Gordhan and Tito Mboweni retained positions in the Cabinet which was good news for many.
The disappointment: David Mabuza retained as vice-president. He is one of the outstanding crooks from years ago, and investors were not happy to see him put in place again. Unfortunately, this was inevitable, as Ramaphosa is only where he is due to wooing 'kingmaker' Mabuza on the eve of the ANC elections.
Fin24 gave a good overview of the situation, with "The good, the bad and the interesting for the economy"
However, all this happened AFTER the Rand had already weakened to R14.70+...after the fact analysis is no good, once again!
Wednesday saw the Rand scuttle up to hit R14.89/$!
This was scarily close to the R15 level, a crucial one for investor confidence. The flip side of this being, a great time for investors to pile in - they will get more Rand for their foreign currency, with the Rand hitting its worst level in 7 months!
And there was the news from the US side of the pond...
The US-China side of the Trade War has continued to escalate ever since Trump made a snap decision to reinstate tariffs a few weeks back. This has resulted in the Huawei blacklist, and now China threatening and implementing different retaliations.
But now it is stage 2: President Trump confirmed via his Twitter feed that the US could impose a 5% tariff on Mexican goods should illegal immigration not come to an end.
Markets did not take to the tweet lightly...
...as the legitimacy of US trade agreements are now being questioned.
In other news...
- SARB made an announcement on South Africa's inflation, saying inflation expectations are showing an "encouraging" decline toward the midpoint of the central bank’s target range while the country’s financial system remains stable, according to South African Reserve Bank Deputy Governor Daniel Mminele. This would be very good news if maintained through 2019!
- What was not so good from SARB this last week was their comments regarding the Eskom bailout - while obvious, it is very concerning just how much of a burden this is going to put on the state - not just in terms of increased debt, but the credit rating of the country. And this was Reserve Bank's warning, as they said the "Eskom bailout risks Moody's rating". On the flip side of the coin, what choice does the country have with Eskom supplying electricity to the vast majority of the country? A rock and a hard place, that is for sure - a very different situation to SAA!
- In the UK, Brexit has shifted back into focus after Theresa May announced that she will be stepping down on 7 June. The race is now on for who will take her place and revive a deal for the UK to leave Europe. The election process is confusing as ever as to who her replacement will be, and BBC tries to explain it over here if you are interested
To end the week, The Rand produced a stunning turnaround ...and not a moment too late!
Friday saw the market turn from its high of R14.84 for the day to end under R14.60 for the day, having built up some good momentum!
It means the losses for the week are not as drastic as they could have been, but the market as a whole is looking very shaky...
...and that was the wrap!
The Week Ahead (27-31 May 2019)
Well, all of a sudden it is June - and to welcome the month in, there are plenty potential triggers for further volatility and sizable moves.
Locally we have the quarterly release of Current Account data, which will be interesting to see the effects that Eskom has had on Trade and and Services accounts.
And then we have the ECB interest rate decision, and of course the US Trade Balance as well as THE event of the month - US Non-Farm Payrolls.
And then we have the ongoing US-China Trade War and its effects ... and the next chapter in the Brexit saga.
So much to keep the markets on the edge of their seats.
From an Elliott Wave analysis point of view, the last week's moves had required a change in the preferred near and short term wave count in a couple of markets.
Sometimes, that's how it goes ...
...the outlook can get a bit cloudy, but suddenly, when the sun appears (the market makes a definitive move), the road suddenly becomes very clear.
We will therefore be monitoring the next week's moves with interest to see whether the preferred wave count holds good.
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