Despite the Rand's best efforts, it just cannot catch a break.
Back over R15/$ to end the week really added to the lack of optimism in the country... (which has been good for exporters, but has left importers wondering where the good start to the year has gone)
It was a perfect storm for the ZAR, of local & global events.
(although every week seems to be this perfect storm at the moment!)
Where is the market going to find some positive sentiment from, is the question on everyone's lips...
...well, after more than 15 years in the game, I have learnt to not look to logic to determine where a market will go.
Let's get into a couple of our insights for the week.
Well, the week of two halves was packed with news and events. Here are a few of them:
- Coronavirus - the lethal Chinese virus is running rampant and beginning to spread worldwide, and while official figures are not very high just yet, how trustable are Chinese Communist Party statistics...?
- Eskom & SAA - locally, the turmoil of SOEs does not look like it is going to be ending anytime soon...but is there light on the horizon?
- Trump acquittal - after weeks of wasted time in the house and senate, Trump was acquitted on Wednesday to end the impeachment enquiry...
- Economic stats - in short, the US economy continues to boom while China's begins to bust!
Early doors, the Rand was sitting a touch below R15/$ to the Dollar, after a volatile week...
As every day past, the news out of China worsened. The concern over Coronavirus was increasing, and the concern over the manipulation of statistics by the CCP was a real threat. As of Friday, official cases were at over 31000, and deaths over 650. If this is what is official, what is reality...?
China censor-centric control of news has always made information from out of the country impossible to trust. If unofficial reports are anything to go by, the situation is far worse than the government is letting on.
And this makes sense, as the economic events being seen are huge. The Chinese economy has ground to a halt, requiring a rethink of almost everything.
China has been forced into providing stimulus (or rather, money printing/injection and stock buying) - and even that was not enough to stop Chinese stock markets plummeting all of 8% on Monday.
So we will keep watching this one…a lot more is yet to be uncovered.
While this is not SA news, and therefore by logic shouldn't affect the Rand, the effect is very real on economies like SA's which depend on China's...
...and reality is that every economy will be affected if China's collapses, being the second largest economy.
Yet, in the first half of the week, we saw the ZAR stage a mini comeback, tracking down to sub R14.70...
Little expected based on the news...yet there it was.
Another classic "opposite of sentiment" move from the Rand - one of the many we have seen in recent times.
We don't have to look too far back to see this, with very negative Eskom sentiment leading into December shutdown, but despite that, we saw the USDZAR track down to hit sub R14/$.
And that's just one example of many...
And then in other news:
- Speaking of Eskom… load shedding persisted throughout the week, with the risk for more to continue. This is a cause of much frustration for all, particularly businesses as the continual fight drains any momentum. However, Andre De Ruyter, the new Eskom CEO has been very specific during his time so far, as to focusing on maintenance even if it impacts with load shedding. In the long run, this is 100% necessary, and perhaps temporary pain will give way to lasting stability. One good snippet of news was the announcement of the State looking to create power generation entity 'outside of Eskom'. Perhaps this will finally give way to private electricity generation and selling, as this came after his comments that they would give the green light to mining companies to generate energy for self-use without a license. They would also be able to sell electricity if they were successful in getting a licence. The problem with this still is - how will Eskom repay its ginormous debt?
- In other local news, SAA continued to fight its own fight, with all the different factions having their say. The Development Bank announced that the R3.5bn loan which they provided saved SAA from bankruptcy. SAA then announced they were terminating all domestic routes besides JHB-CPT, and a host of international flights too. Come Friday however, news broke that Ramaphosa was not happy with this decision from the business rescue team - standby for the next update on this...!
- Over in the US, Trump managed to wriggle free quite comfortably from the grasps of the Democrats to be acquitted by the Senate on Wednesday. After all his promises that "Stock markets will crash if I am impeached", perhaps this gave investors a chance to breath easier...but the coming months of his presidency will be interesting as we see what actions are taken in global trade. At least for now, US and China have decided to de-escalate tariffs imposed on each other.
- Locally, the overall economic situation is week, and Finance Minister Mboweni is desperate for something to convince Moody's of SA's turnaround. However, what he is facing is between a rock and a hard place, as there is a massive revenue shortfall which needs to be made up, and analysts are pleading that it is not 'plugged' by hiking income taxes. Pressure continues to mount on him and Ramaphosa, as set out in Bloomberg's article: "World to Ramaphosa: Do something fast to save South Africa"
And the second half of the week saw the Rand just collapse back over R15/$ as global uncertainty took hold...
The final push over R15 was triggered by US Non-Farm Payrolls coming in at 225k in January, beating the 160k estimate, but unemployment rising 0.1% to 3.6% on the back of a rise in overall workforce.
So, a rough old week for the ZAR ended very much on the back foot...where to from here?
The Week Ahead (10-14 Feb 2020)
And so, as he we head into the second week of February, we have the State of the Nation Address, with Ramaphosa not being able to tout much success at all.
Both this and the budget speech on 26 February will be closely watched by Credit Rating Agency Moody’s as they prepare their next review for the 27th of March.
US Fed's Chair Powell is also expected to testify this week, and together with Retail Sales will likely give the market some triggers.
Where does this leave the Rand?
Well, it is the second week that the Rand has ended badly, and based on what the Elliott Wave patterns are telling us the next couple of weeks are likely to remain very volatile - and we will be keeping our eyes on some key levels.
To get a look at what we are speaking about, use the link below to get access to the latest forecast.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~