November has well and truly kicked off with a bang!

After months of battering, the Rand and most global currencies were hoping for a glimmer of hope, with speculation growing around a potential pivot in the US Fed policy...

...with emerging markets especially susceptible to global triggers such as US monetary policies.
Well, true to form, this past week was yet another illustration of this...

...with the all-important US Fed interest rate decision scheduled in midweek, markets and investors were braced for action.

Here’s how it all went down.

Key Moments (31 Oct - 4 Nov 2022)

These were the key talking points of the week:

• SARS Smiling Again - South Africa’s balance of trade surprised to the upside early in the week as SA’s Revenue Service recorded an expectation-beating trade surplus in September.
• US Interest Rates - In its ongoing and relentless (futile?) effort to tame rampant inflation, the US Fed announced its fourth consecutive rate hike on Wednesday. Were possible pivot talks in December premature?
• UK Woes Continue - The already pressurized Pound took a further blow as the Bank of England became the latest to join the 0.75-basis point club, announcing its largest rate hike in 33 years.
• Jobs Market Resilience - Despite the US Feds' best efforts to cool the economy, headline jobs figures indicate that there has been little impact made on the country’s jobs market - on.

We start our weekly journey on local shores, where the local unit was struggling to find firm ground, opening at R18.24/$ in Monday’s morning trading session.

The solitary key local economic data release for the week was the Balance of Trade figures which were due later in the day...

...and turned out to make for positive reading.

SA’s balance of trade recorded a surprising trade surplus to the tune of R19.7 billion in September, head and shoulders above August’s 7-month low of R7.2 billion. The gains were led by strong export activity, which increased by 10% between August and September, while imports increased by only 2.3% over the same period.

However, the improved trade surplus results did nothing to help the Rand, which battled through the day before closing at R18.35/$. By the time the Fed's decision rolled around Wednesday, the Rand had made some ground back to R18.15, but was continuing to yo-yo back and forth...

With a wide expectation of another 75 basis point rise to the benchmark rate all but factored in, markets were arguably more interested in the commentary by Jerome Powell in the hope of unpacking further clues over the pace of future rate hikes.

After unveiling the expected fourth straight (and sixth of the year) 0.75% rate increase, Powell proceeded to pour cold water over many hopes of a policy pivot.

Announcing that the ultimate level of interest rates would be higher than previously expected, he added that there was still some ways to go until borrowing costs could return to the norm.

He further emphasized that “it is very premature to be thinking about pausing”.

Evidently, The US Federal Reserve offered very few crumbs of comfort to the market, and once again, economists’ recent dovish hopes get smacked on the nose with a rolled-up newspaper.

So far, the Fed’s rate hiking trajectory has not had a significant impact on prices but has significantly increased the risk that the US could tip into recession, and a popping of the significant debt bubble. US Manufacturing results for October were also released in the week and showed that activity grew at its slowest rate in over 2 years to 50.2 from 50.9 in September...

...while non-manufacturing PMI also fell to 54.4 from 56.7 over the same period.

Despite this, recession fears seem like they will take the backseat for now, as Powell reiterated that it would take time for the effects of the measures taken to kick in. The announcements certainly left the door open for US officials to continue lifting rates as they deem necessary, and as has become customary, sparked major market movement.

On the back of the news, the local unit nosedived as low as R17.97/$ by Wednesday evening and then, in a flash, began its ascent yet again.

By Thursday morning, the Rand was back above R18.30/$ and marched onward to R18.52/$ in the afternoon trading session before closing the day at R18.40/$.

And then, in other news:

• The Bank of England set a new record in the week - albeit an unwelcomed one – by raising its interest rates by three-quarters of a percent as it tried to contain soaring inflation. The latest increase marks the country’s biggest hike in 33 years and lifts borrowing costs to a 14-year high. The BOE went a step further to warn that the UK's economy is likely to face a prolonged recession that may likely continue into 2024! A two-year recession would be a longer one than that experienced during the 2008 financial crisis.In contrast to their US counterparts, the BOE is having to grapple with a sharply slowing UK economy while still reeling from the government's disastrous mini-budget, which stomped bond and pension sectors in September and October. The GBP has been another that’s been struggling for traction and fell sharply again after the announcement, shedding 2% against the greenback to £1.11/$ while also falling over a full percent to the Euro.
• Stocks rose on Friday as the Dow Jones Industrial Average climbed by 1.7%, while the S&P 500 and Nasdaq Composite recorded gains of 1.8% and 1.7%, respectively. Despite the end-of-week gains, all the major averages were still set for a week of losses as investors digested the US Feds midweek comments and the October jobs report.
• Meanwhile, in the crypto-sphere, Bitcoin, the largest cryptocurrency by market cap, increased to $20,650 following Wednesday’s monetary announcement and then rose by a further 3.5% into Friday to almost $20,900, while second-placed Etherium was changing hands at around $1600. After months of downward movement, crypto finished October slightly higher, leading into what may be an action-packed last couple of months of the year.
• The European Central Bank President Christine Lagarde also flagged more interest rate hikes on the horizon for the countries that share the Euro as currency, and further explained that a mild eurozone recession was looming but that it may still not be enough to bring down record-high inflation rates. In a flash reading released in the week, the Eurozone is expected to reach new record heights of inflation in October of 10.7%! If this is confirmed by Eurostat later in the month, it would mark the Eurozone’s first-ever inflation reading to cross the 10% threshold.



• Inflation in the Eurozone was recorded at 9.9% in September, and the anticipated increase for October is expected to be driven by energy prices which are estimated to have increased by an eye-watering 41.9%, while food, alcohol, and tobacco are expected to have risen by 13.1% YoY.

By Friday, markets were preparing for the final piece of information of the week – the October US Non Farm Payrolls report. The report made for mixed reading, showing that employers added 261,000 jobs in October but also that unemployment rose to 3.7% from 3.5% a month earlier.

While the monthly job gains were notably lower than September’s 315,000 increase, it was still above the forecast 200,000 and well above the 183,000 average over the last decade.

The market reacted to the news in a big way, as investors dipped back in, seemingly with rekindled hopes of a US Fed pivot and proving yet again how data-driven the sentiment of the current economic climate is...

Most markets experienced a sharp and steep reversal in Friday afternoon trade, as did the local unit, which opened the day above R18.30/$ but snapped up the gains on offer trading in the mid-R17.90s by mid-afternoon and managed to hold below R18/$ to close out the week.

Can it last?

We’ll find out next week. For now, though, that' the wrap.

The Week Ahead (7-11 Nov 2022)

A relatively thin week of economic data is expected, but there are a few significant ones we’ll be focusing on:

• US - Inflation Rate YoY, Michigan Consumer Sentiment Prel (NOV)
• UK - GDP Growth Rate YoY Prel (Q3)
• SA- Mining and Manufacturing Production YoY

November is well and truly underway, and next week is already shaping up to be a cracker.

A looming public sector strike following collapsed talks between labor unions and the government has been earmarked for Thursday...

...and could see large factions of nurses, police, and other public sector workers stay away from work, which would create major disruptions to key government services.

As for the local unit, we should expect choppiness once the US inflation results drop next week, so until then, step lightly and avoid rash decisions.

As for us? We'll be relying on our Elliot-Wave-based forecasts to provide some direction. Please join us for the ride!

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