An interesting few days, as the Boks brought it home and Moody's didn't drop the guillotine.
While the Rand was range-bound for the most part of the week, there was a significant recovery to below R15/$ which cheered Saffers no end.
And then it was the global stage, with US and China in the news again...
So let's get into the full review!
Here were some of the biggest headlines from the 5 days:
- Moody's give SA a chance - while downgrading SA's outlook to negative was bad news, it was the best SA could have expected considering the general response to Mboweni's mid-term budget
- Boks bring it home - a crushing victory over England in the final meant huge celebrations countrywide!
- Trade war deal - US and China inch toward a phase one deal...this will be a HUGE step if it happens!
- Ramaphosa's investment drive - Round No. 2, and another successful round it would seem as another R363bn was pledged following the investment summit
- Prescribed assets - Mboweni provided us with an update on this front...
There were only two main conversations in SA on Monday morning: Moody's reprieve for SA and the Bok victory over England on Saturday in the Rugby World Cup Final!
It had been quite a finish to the week, that was for sure...
...but the far closer of the two events had been South Africa scraping by Moody's review of the investment rating. The outlook had been downgraded from stable to negative, but investment rating had stayed the same.
However, there was more to it than just that.
There are a lot of factors which come into the rating system, and taking a deeper look into Moody's different meters makes for some very worrying and interesting reading, such as:
The changes are significant and culminate in SA’s rating range moving down two notches, from the Baa1-Baa3 range, where SA was at the bottom of its assigned rating range, to Baa3-Ba2, where SA is now at the top of its new, far lower, rating range. (Baa3 is investment grade whereas Ba1 is non-investment grade.)
Why this happened is mainly down to SA's:
- Fiscal strength score has been adjusted from M+ to M-
- Susceptibility to event risk has been adjusted down from L+ to M-
With the current trend, economists are revising their estimates of when SA will be downgraded should the economic situation continue...
...and at the moment, consensus has SA being downgraded in March 2020 - a very short time for Ramaphosa & co. to turn the ship around!
As for the Rand, it seemed to not get caught up in the detail of what was happening, and opened much stronger Monday on the back of the 'good' news:
And in other news, we will take a look at others triggers that boosted for the Rand:
- What else, besides Trade War news! It seemed things were progressing nicely between the US and China, as both confirmed they would be dropping some of the tariffs imposed on one another as the deal progressed. The remaining obstacles for the first phase of the deal seem to be minimal, and they are nearing completion of signing this into effect. This provided some triggers for the markets, with emerging markets moving stronger, and Gold moving weaker
P.S. Did you know we now forecast Gold? Have a look here at our DFS Global Forecasts. We called this move exactly.
- In SA, President Ramaphosa kicked off the 3-day SA Investment Conference in Sandton with the theme of “Accelerating Growth by Building Partnerships”. Overall, the conference was very successful thanks to R363bn worth of investment - higher than last year's R301bn. The total jobs created from the investment drive thus far stands at 16,000...many more are needed, but it is a start.
- S & P Global finally broke their silence regarding the bleak Mid-Term Policy Statement ahead of their next rating review later this month. They fuelled further concerns, as the rating agency’s regional representative sounded ‘downgrade’ alarm bells, despite already having the country on sub-investment grade. We will have to see what their official take is in a few days time...SA was not the only country struggling as Moody’s also took aim at India, downgrading their rating outlook from “stable” to “negative”.
- In economic news, the BoE kept interest rates the same, US Trade Balance improved by 3.1% against China as they moved toward a deal, and SA's Consumer Confidence fell to the lowest level since Ramaphosa became President.
- Mboweni gave an update from the Treasury as to Prescribed Assets, saying that the National Treasury is not "actively" considering introducing prescribed assets which was a huge relief to all. However, what is really needed is absolute clarity that they are off the table for good!
- And lastly, it seems Eskom is back in the hot seat with troublesome equipment resulting in Stage 2 load shedding out of the blue on Thursday night, and still risk of further 'lights out' over the weekend.
The week ended rather flat as the market moved back up from sub R14.70 on Thursday to close around R14.85...
It had been a strange week - despite the news, the market had been steady...just waiting for some clarity on the Trade War.
And that was the wrap!
The Week Ahead (4-8 Nov 2019)
So, into the second week of November and this week there is not a lot to speak about in terms of potential triggers for market movement, with US Fed Powell's speech and US Retail Sales likely to be the highest impact events...
...but of course that doesn't mean the market is likely to be subdued.
So, for the Rand, we have managed to dodge the bullet from Moody's - what now?
Simply put, we tend to let the market itself tell us what is most likely to happen next. Our Elliott Wave-based analysis of the sentiment patterns suggests some initial upside is likely in the short-term, with 2 possible scenarios playing out - hence, we are still 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 to get access to the latest forecast update.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~