Rand fights back late to end the week on a high

The main point of discussion for this week was always going to be the next stage of the land debate taking place...

..as on Tuesday evening, Ramaphosa came out to announce that the ANC had concluded that the Constitution of South Africa needed to be amended to explicitly allow land expropriation without compensation.

This set the cat amongst the pigeons, to say the least.

How could the ANC make a decision on this while hearings were still being concluded in the Western Cape?

Bottomline, the decision had effectively been made BEFORE persons had even had a chance to give their views on the way forward, let alone the fact that the submissions from the hearings have not yet been documented and reviewed.

Many took issue with this...

...as did the Rand, it seems.

But there was more to the story than that - as we will review below - do join us...

First things first, our forecast from Friday showed the path ahead...

With the market at 13.19 at the end of the week, we were expecting to see the Rand push a little lower in the week before bouncing off support around 13.1628 with a slightly overall bearish outlook thereafter.

USDZAR_STU Click to enlarge

And in the week, there were a handful of key moments:

  • Land Expropriation Without Compensation (EWC) - the next step in the process brought shock to the country and investors globally, as Ramaphosa announced that the ANC would support an amendment to the Constitution...
  • US Fed Rate unchanged - a big decision, as there are still increases expected before the end of the year, but we will have to see how that plays out.
  • Zimbabwe Elections - things turned from calm...to iffy...to sour...to dangerous...
  • More interference in US elections - Facebook is the medium again, as news hits that they have detected some phony business on the go again...
  • US Non-Farm Payrolls - Although not as strong as expected, the payrolls continues to deliver good news.

It was a week of two halves, as we initially saw the market move even lower to test the best level we have seen in 3 weeks...

...only for it all to come tumbling down on Tuesday evening.

It was a strange turn of events, really...

President Ramaphosa announced that the ANC had concluded that they need to amend the constitution to explicitly allow for expropriation of land without compensation. And next thing, the Rand was sitting nearly 20c higher. So, obviously, the announcement of the Communist plan going into action, sent the Rand that high?

Well, there is more to it, as shown here:



So, the market had already weakened 10c BEFORE Ramaphosa even went live with his announcement.

Economists will say it was the announcement, but in reality, it was just a trigger for the market to go further.

And go further the market did.

Just a few days later, we were trading at a touch over R13.50 - a full 40c from where it had begun.

It was an unfortunate situation - the Rand had actually moved much as we had expected, dipping down to make a low of 13.08 before reversing direction and heading higher.

One of the other things which came out of Ramaphosa's announcement was the news pieces on the way that the event was handled by SABC.

Not for the first time, questions were asked around how this happened at such a strange hour of the night, with seemingly no other broadcaster getting access to the same content. Reminiscent of the Zuma years...?

There was plenty of other news on the go too.

Here are a few other newsworthy moments:

  • The effects of the Trade War were actually being seen in the major economies now. We got news that the Chinese factory activity had dropped. US “trade war” tariffs inflicted on China had successfully dealt its first major blow as the country’s manufacturing number dipped. This too means that South Africa gets a knock on effect, with China being the biggest trading partner with SA.

  • On the USA side of the pond, on Wednesday the Fed announced that they were not going to change the interest rates, but said that the economy is "strong", which can be well understood, with the consistent strong jobs numbers, low unemployment rates and the beginning of the trade deficit being reduced.

  • As for South African facts and figures, on Tuesday, a better than expected SA Trade Balance (R12 Billion surplus) came through. However, at the same time, the "official" unemployment rate worsened to 27.2%...eish!!

  • Just over the border, Zimbabwe was having their first election since the ousting of Robert Mugabe. While the election was initially touted to be a victory, as it went off "calmly"...that was, at first. However, once the vote counting was supposed to be completed, things started to get heated - and eventually ended in all out carnage in the city, with army involvement and more. Not a pretty scene...

  • A very interesting piece was written by Gareth Bloor on why South Africa's stance on Land Expropriation matters to the world, and it resonates with views that a lot of people have. The fact is that it is terrifying to investors, and this is a real problem going forward for SA, who depends on foreign investment. Some other interesting comments were also made - a worthwhile read...

  • Chinese loans...shiny and attractive on the outside. But the question is: what is the fine print? It sounds like a good idea, but in reality, there may be a very different story behind the scenes - giving this a very fake sense of positivity.

  • Facebook has been at the center of so much controversy over the last year or two, and it does not look like stopping anytime soon. They have now found evidence of ongoing interference in the US mid-term elections. What next for the embattled tech company?

  • And some action late on Friday brought the next stage of the Trade War to the forefront - this time, it was China, as they announced tariffs on US products to a total of $60bn - this is a big figure, but the fact remains that it is still advantage to the USA with so many more goods being imported into the US. But, of course, the big event for the week was US Non Farm Payrolls, which more often than not provides a trigger for big moves. And although, 157 000 new jobs created didn't quite meet expectations of 190 000, it was still a robust performance, with unemployment once again dipping below 4%


But once again, the market had reversed prior to the announcement, and the news release just provides some extra impetus for a move back down around to R13.30...



So all in all, not a bad week, with the Rand having clawed back a fair portion of is initial losses for the week, and lived to fight another day...

The Week Ahead (6-10 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?

...And see how this could benefit you in making informed, educated and rational decisions.

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All the best for the week ahead,
James Paynter

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