Pressure has continued to sap the life out of the ZAR, as we see another week hovering in and around, and eventually over the R15/$ mark.
With a storm of both local and global news really causing hassles, the question on everyone's lips was how this trend was going to turn around?
Well, one thing we have learnt is this: don't look at what meets the eye in terms of events to see where the Rand is going.
Time after time, we see the market react EXACTLY the opposite to what you would expect.
Don't rule it out from happening again. Stick to the wave patterns.
That being said...let's take a look at some of the news from this last week.
On Friday, we released our forecast with the ZAR at an iffy level, leaving a 50/50 count for the next few days. We sat at R14.9102 with a breakout needed to confirm direction. If we broke over R15.06, it would confirm us heading higher to R15.17-15.36 target area...(see below our forecast - click to enlarge)
It was going to be an interesting few days...
And once again, it was a week of big events. Here were a few of the headlines:
- Moody's - the Rating agency could make their decision anytime on SA being investment grade or 'junk' status after Mboweni's budget, but they gave some indication of what they are thinking about South Africa this last week...
- Budget 2020 build-up - speaking of which, Mboweni has a job and a half on his hands try and balance the figures, as all eyes are on him this Thursday
- Coronavirus - headlines are still dominated by the unknowns surrounding the lethal virus, and the economic impact is being felt everywhere
- Eskom debt - another 450bn problems for Eskom, as CEO De Ruyter warned again of the ever increasing Eskom debt...
The Rand opened around R14.90 to start the week...but as it turned out, we would not be there for long.
On Monday, Moody's gave us the first bit of insight into how they were feeling as to South Africa's economic situation - and what we could expect come the next investment grade rating decision.
They issued a statement on SA's growth forecasts: Moody’s trimmed SA’s growth forecast to 0.7% (from 1.0%) in 2020 and 0.9% (from 1.2%) in 2021…
...meaning 27th of March has become rather a D-day for SA. By then, Moody's has to make a decision on whether it is junk status or not.
And investors did not react well to this. The Rand spiked higher Tuesday to touch back over R15/$. This confirmed our count that we would then be heading higher to R15.17...
It is worth remembering that foreign investor sentiment is crucial to the country, with foreigners already holding 40% of SA bonds. These investors place huge store on the view of a company like Moody's, and while it is a risk/reward situation, when the risk outweighs the reward, the investors are only going one direction.
But the next stop for Moody's is on the horizon: Tito Mboweni's Budget speech
This will outline the nitty gritty of Ramaphosa's plans from the SONA, and how the numbers stack up, which is really what Moody's pays attention to.
All expectations are for a damage control speech, with Tito doing all he can to avoid the Moody's downgrade. Will he be honest or will he avoid the difficult subjects is going to be the question?
Honesty is the best policy for sure, but some subjects become fairly uncomfortable if you are trying to avoid a ratings downgrade!
In global news, here were the top headlines:
- Coronavirus is still a very current a real threat to the global economy as China's figures continue to not add up, causing concern globally as to a cover up job - which is very likely, going by history. In terms of the economy, many measures have been taken. The People’s Bank Of China cut the country’s medium term interest rate as an attempt to inject stimulus into the ‘ailing’ economy. Chinese authorities also launched new stimulus measures to steady the economy and curtail the impact of the coronavirus by lowering repo rates and injecting liquidity into the market. With businesses starting up again, a strong upturn in Chinese manufacturing has given some hope of a quick turnaround, but nobody is sure what to believe anymore. For now, institutions like the IMF are just waiting to evaluate what the effects of the virus have been.
- Over in the US, FOMC minutes showed that policymakers are optimistic about the economic outlook, suggesting rates are likely to remain unchanged this year.
- On Eskom, debt continues to be a major concern as CEO De Ruyter reminded everyone that Eskom's debt will not simply "go away". The problem with the SOE now lies in the fact that they need to invest money into infrastructure, before they can ouput the required electricity to run the country. The idea to allow 3rd party generation is a good one, but has it come too late already? (after experts have been calling for many years to allow it...)
- Global trade continues to be a major point of debate, but so far South Africa it looks as if exports to the US are unlikely to be affected - according to the South African government. This follows the US's decision to remove the country’s exemption from trade-remedy laws. But there is much more news to come on US-Africa trade over the coming months, that is for sure...
- Goldman Sachs weighed in following Ramaphosa's SONA to say that Ramaphosa could release a "wave of investment in SA". But that until then, investors are "...taking a bit of a wait-and-see approach.” The key point they highlighted was for the need for structural reforms, which surely includes the restructuring and stability of Eskom.
As for the Rand, after a really rough week, breaking as high as R15.18 on Friday - as per our forecasts from the previous Friday, as well as from Wednesday & Thursday- we then saw a change of fortune on Friday afternoon!
With seemingly no trigger, we saw the market push 20c during the course of trade (even after SA market hours) to hit as low as R14.93!
But once again, the market patterns anticipated this - before it happened...without looking for any reasons whatever, as shown in Thursday's update below which we had issued the day before... (click to enlarge):
Proving what we started with in the summary...such is the name of the game in the markets.
And that was the wrap!
The Week Ahead (24-28 Feb 2020)
As we turn to look at the coming 5 days, there is promise of a massive week ahead for the markets...and we would advise strapping in for the ride.
Ahead of us we have one of the most anticipated events of the year: Tito Mboweni's 2020 Budget
And directly after that will be the aftermath and analysis, followed by Moody's 'Junk' decision either on or before March 27...
...but this budget will give us a good idea of how bad the damage is, and whether it will just be an obvious, instinctive decision to downgrade, or if it will be a case of one more chance?
Other events in the markets are all lower key, but SA's PPI & Balance of Trade, US Durable Goods orders, and a few others will also be watched.
So where does all this leave the Rand?
As for us, most of all, we will just be watching the Elliott Wave Patterns as they once again called the moves this last week.
So it promises to be a big week...strap in!
To get a look at what we are speaking about, use the link below to get access to the latest forecast. No charge. All yours for 14 days.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~