After a few weeks of positive Rand performance, a change in fortunes was surely coming...
...and come it did, in dramatic style!
In a week of events, news, shocks and disasters, the Rand went for one of the most dramatic loops of this year...(just how many have there been in the last 10+ months?!)
It was always going to be a critical week, which everyone has been waiting months for, but few were expecting as drastic a week as it turned out to be.
However, our forecasts gave some insight into what was going to happen before the week even began...
...so let's get into the full review!
Before the chaotic week began, we released our forecast with some insight into what to expect over the next few days...
...and it it did not make for good reading, if you were looking for continued Rand strength.
With the market at 14.6247, the expected trend was for the Rand to move a little lower in the 14.63-14.48 area, before heading higher, with a break above 14.70 confirming a move to 14.90 and potentially beyond.
And what followed (as you already know) was quite a week...
Here were some of the many big talking points:
- Mboweni's budget - the worms well and truly crawled out of the wood now, as Mboweni's budget provided stark and shocking economic figures
- Eskom's (non) plan - all the hype from the government as to Eskom's turnaround plan turned to be disappointment all around...
- Unemployment sky-rockets - the worst levels in 11 years were announced this last week as it neared 30%...
- The wait for Moody's ... with bated breath, Saffers awaited the guillotine from the ratings agency following the Mid-term budget.
- Brexit delayed again - well now, who would have guessed...? Yet another delay to the infamous Brexit meant we are going to be waiting until at least December for clarity on this thorn in the EU flesh.
At the beginning of the week, the Rand was looking rosy, trading at just R14.60 odd, and moving lower over Monday and Tuesday to make a low of R14.51 to the Dollar...
...but that was as good as it got, as the slew of events hit:
- On Tuesday, Q3 figures for unemployment came out with a bang, announcing the worst unemployment figures in 11 years at 29.1%. Many have differing views that this is actually lower or higher than it really is, but whatever the case, this is the worst it has officially been since the financial crisis year of 2008.
- On Wednesday, the market opened at R14.63 after this news, and right on the horizon was the next big event: the release of the government's plan for turning Eskom around. And as it turned out, Gordhan's plan showed Eskom between a rock and a hard place, with more of the same not giving much insight at all. Cost structures are too high and revenue is not enough to cover costs. Eskom plans to use more renewable energy and will announce a new CEO soon, while there is no new info on any restructuring of its crippling financial obligations. More detail on the plan over here. This triggered the Rand to over R14.70, despite the news that Eskom has also reduced chances of any load shedding soon to a minimum.
This was all exactly as per our forecast, with the market bottoming at 14.51, and then moving higher. With the break above 14.70 now complete, we were expecting to see a break to R14.90 and possibly beyond...
And then we were onto Thursday: Mboweni's budget day...
...and this was when it all unraveled for the Rand:
Mboweni's budget was a bit of a mess from start to finish...
He didn’t pull any punches when painting an alarmingly stark picture of SA's economic and budget deficit outlook:
- The national debt now tops R3trn and may grow to R4.5trn by 2022/23 – or 71.3% of GDP. It is currently at 61% of GDP.
- The financial bailout of R59 billion to Eskom continues to cripple the nation and its already poor budget. Total indebtedness has swelled to R450bn, dwarfing what is owned by other SOEs. "We cannot continue to throw money at Eskom," he said.
- Over the past 13 years, South African Airways has incurred over R28bn in cumulative losses - and it is time for government to get rid of it.
- The potential for extra taxes next year has increased, and in all likelihood will now happen.
- And much more...here is an article from Fin24 on the budget in a nutshell
The Rand triggered much higher, all of 30c in just one hour as these figures came out, and then up and above R15/$ over the following few days...
While this extension higher had been a bit more drastic than our forecast projected, it was per our patterns of where the market bottomed out and headed afterwards...proving the Elliott Wave Principle's resilience once again.
And then in other news from abroad::
- Brexit...ah yes, ye olde Brexit. The frustration of every EU citizen doesn't seem to be ending anytime soon, as the EU agreed to yet another extension of the Brexit deadline, as we set up for a fascinating end of the year with the Brexit deadline penciled in for 31 January 2020, and the next UK Election just before that on 12 December 2019. Whatever happens, this is going to be huge for the UK, EU, British Pound and Euro...watch this space.
- Despite there being some rumblings of good news on the Trade War front, the week ended off with rumours (yes, just rumours for now) that the Chinese were reluctant to sign the "phase one" Trade deal. Whether this is just part of negotiations or not remains to be seen, but officials are also playing down the likelihood of there being a comprehensive deal anytime soon.
- Over in the US, there were some important economic events with the Fed lowering its policy rate by 0.25%, as expected, while indicating that it might wait on further cuts. On Friday, Non-Farm Payrolls came out better than expected with 128,000 jobs added.
As for the Rand, it strengthened slightly in late trade to hover around R15/$, after hitting a weekly high of 15.18 to the Dollar...
...BUT, and a big but at that, we were still awaiting the hugely important Moody's rating decision when trade closed.
This is of all importance to South Africa, that a stable investment rating is maintained, even if Moody's gives a negative outlook for the future. Investec warned following the budget speech that SA "could be junk status by Friday", but until market's closed, it was a guessing game...
And a few hours after close, Moody's came out with their verdict - maintaining the credit rating at (just above) investment grade, but changing the outlook from 'stable' to 'negative' - a lesser of two evils for sure, and it must be said a reprieve for the local economy!
And that was the wrap - what a week!
The Week Ahead (4-8 Nov 2019)
Phew, what a hectic week for the Rand, ending with the decision by Moody's to hold a lifeline open, but clearly indicating that time is running out for the SA government to turn things around...
Frankly, this still leaves the Rand between a rock and a hard place, but averting a downgrade has certainly led to a sigh of relief - for now!
So, into November and just two months left of the year, and we don't expect the roller-coaster ride to start slowing down at any pace soon.
This week sees a few events that could provide triggers, with US trade balance and Bank of England interest rate decision probably being the highest impact ones.
And, of course, who knows what impact the Springboks' performance in the Rugby World Cup will have on overall sentiment?
But, back to the Rand, where to from here?
Our Elliott Wave analysis suggests it is starting to run out of steam short-term, but we are looking at some key levels to confirm direction in the coming weeks.
To get a look at what we are speaking about, use the link below:
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~