A see-saw week (again) left the Rand on the ropes to close the week.

Seemingly taking alternate turns each week, the Rand has been as volatile as ever - but just managing to hold on.

This week, however, was very different.

The ZAR copped it, and copped it hard.

Thursday was nothing short of a catastrophe for importers and consumers, as a 30c crash-flash meant the Rand was well over R13.50 again...

...and in fact, touching over R13.70.

On Friday, things got even worse.

Much much worse.

Iffy times for the Rand - when is it going to turn around, if ever?

First things first, let's start with the review...

From the word go, it was a tough start for the Rand from Monday morning - as we saw an immediate loss of ground, with the market pushing up to R13.46 in early trade on Monday. But that was just the start in a see-saw week...

It was also a week with plenty happening, despite the lack of economic events:

  • Rand collapse - all the good work undone, once again as the market capitulated to end at its worst level since November last year...how many times have we had this in the last few months, as the Rand just cannot seem to catch a break
  • Emerging markets take a beating - it was not only the Rand suffering, as the contagion triggered by the Turkish Lira having a major meltdown caught all emerging market currencies in its slipstream.
  • Trade War - the simmer continues, as US vs China has taken quite a sour turn, with a war of words starting to play out alongside the trade war itself
  • Concern over ANC's version of 'democracy' - in a democracy, it is meant to be the people of the country who take control, as they are able to vote and have a say on important issues. This does not seem to be happening anymore in SA.

And this was what we saw in the first half of the week:

It was unfortunately a week filled with a lot of panic in the ZAR markets.

Panic over the ANC decision to amend the Constitution - this is no small decision, as the Constitution forms the fibre of a country. If that changes, so does the country. Forever.

There were hidden elements to how it all happened, too.

Such as what we spoke about last week: how the ANC still has the SABC under its control.

But too, alongside that:

  • President Ramaphosa made the announcement not as President of South Africa, but as President of the ANC. There is a distinction in this, and what was deceptive is that the SABC aired this statement as a government address, in "An Address to the Nation".
  • Ramaphosa did not just announce that there was going to be an amendment to the Constitution to allow for the return of land to anyone who had it stolen. Not at all! He went a step further in saying, "The intention of this proposed amendment is to promote redress, advance economic development, increase agricultural production and food security. It will also transform the unjust spatial realities in urban areas."

    This is the FIRST time this has ever been made mention of. And what does it mean? In practice, exactly the same as happened in urban and rural areas in other Communistic countries. Look at St Petersburg, Moscow, Warsaw, Riga, Budapest and many more examples, where persons from URBAN areas (meaning this is no longer just about the farms) were forced to do one of the following:

    • Take other people in, once their land has been expropriated
    • Vacate the property, as the house is expropriated and given to a bigger family, and made to live in a smaller apartment
    • Allow persons to erect shacks on the property because it is expropriated

    Which way the ANC will take this in unknown - but ALL of these ideas are Communistic at root, and showing that the EWC debate is in fact NOTHING to do with farms. They are merely a starting point.

As this has been unfolding, the markets have not been taking it well.

And who could blame investors from panicking?

This situation gets worse by the day, despite promises from Ramaphosa that, "We will not allow land grabs and anarchy...", investors are beginning to panic, saying that he is speaking with a forked tongue...

Friday however, was when things really went pear-shaped. In fact, it made the first half of the week look like a cake-walk.

In a matter of hours, the USDZAR had crumbled to its worst level since November 2017.

A new high for 2018 of 14.146 was posted...

Tough times if you are an importers, and even regular consumers...

Other newsworthy events from this last week were plentiful:

  • The Cape Town housing market is one of the best in South Africa, but as this EWC debate has rolled on, the market has 'cooled' significantly. With enormous drops in year on year increases in value, the market has slowed right down as a whole, and is expected to stay this way for the foreseeable future.
  • The Trade War's war of words got worse this last week, with China vowing to fight until the end, warning the US of “arrogance” and “making a fool of itself”. It was clear that this battle was far from over, when Trump again threatened $500bn worth of tariffs on China. What next...??

    While his words are to be taken with an entire cellar of salt, you can well understand Trump saying that he believes the US has the upper hand in the Trade War right now. It does appears as if China is on the backfoot, and is unclear which way to move forward without shooting themselves in the foot.

  • Bank of England's decision last week to raise interest rates for just the second time in 10 years was quite something. However, it has not been of any benefit to the Pound as yet, as it is officially made a 1 year low versus the Dollar, hitting its weakest level.
  • Thus far, the Trade war has only really been between the US and China, but US President Trump flexed his economic muscle power on Friday, in seeking to get a US Pastor released from Turkey. With the Turkish Lira already under major pressure and dragging other emerging markets with it, the US announced tariffs on Steel and Aluminum to be increased to 50% and 20% respectively. While Trump playing tough with Turkey may have some reasoning in protecting US interests, nevertheless, the diplomatic spat managed to get all emerging markets caught up in the volatility and uncertainty that resulted...
  • This did not bode well for the Rand. As it is a similar emerging currency, investors decided that it was going to be a Black Friday, and seemingly pulled out of all high risk markets. This panic action meant a very difficult period of time for of those markets which are classified as "exotic".
  • There were compounding factors to this too, as concerns over EWC in SA had already put investors on shaky ground. Couple that together with the fact that the ANC has announced they are proceeding with the amendment of the constitution, despite the fact that the public hearings have not yet been concluded. It feels like democracy is falling apart, as the the public do not seem to carry any weight, and it is just the ruling party which calls the shots.
  • Steinhoff and the Rand seem to have a lot in common these days - neither of them can catch a break! The latest is that investors are planning on suing Steinhoff for R190bn - just another worry for the embattled company.

While everyone waited in hope of some relief before the US close on Friday, it never arrived, and the Rand ended up around R14.10/$ at the close of the week...Ouch!

The Week Ahead (13-17 Aug 2018)

So, another week dawns, and where to for the Rand?

And with not too many local economic event triggers this week, it will be more a question of what is happening on the international front, while of course the Expropriation Without Compensation debate keeping uncertainty at a high.

Our analysis is showing a fairly clear picture for the foreseeable future, but as it is with any forecast, this is a question of getting the best picture based on the data available at this point.

Overall, it looks like the Rand may have some tricks up its sleeve this week,

Why don't you join us to see how the market pans out based on our analysis?

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All the best for the week ahead,

James Paynter

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