Up and down, back and forth, to and fro for the Rand, as we saw the market volatile but mostly trading sideways.

This despite all of the news, supplementary budgets and more, it turned out to be a bit of a 'damp squibb' for the news stations with no real breakout in the markets.

It was an interesting week none the less, as we saw Tito Mboweni try and balance a weak economy while walking a tightrope over the top of a sovereign debt crisis.

There was plenty more to review as well, so let's get into the unpacking of the week

In the topsy-turvey week, here were the biggest talking points:

  • Tito's budget - Finance Minister Mboweni painted a very difficult picture of where the country finds itself following the pandemic fallout...where to from here?
  • Second wave fears continue - as Bejing declares their outbreak under control, the US and many other countries still grapple with wave 1...
  • Mixed Trade Deal signals - with Trump and members of his administration having different takes on whether the China Trade Deal was still intact, more uncertainty arose as to whether the agreement will be kept to
  • Unemployment rate - a record worst level for South Africa confirmed everyone's worst fears...but these were from before the lockdown even began

Well, we will try keep this not as all doom and gloom - but it was a week with few bright lights for the Rand.

Despite ending the week stronger than it began, it was a difficult few days as Mboweni put a real damper on hopes of a 'better-than-we-feared' situation.

The mid-week supplementary budget provided some shocking reveals:

  • SA will miss its original tax revenue target by over R300bn this year. (standby for tax hikes?)
  • The South African economy is now expected to contract by 7.2% in 2020 - the worst in 90 years.
  • The consolidated budget deficit will rise to R761.7 billion, or 15.7 per cent of GDP in 2020/21, with the gross national debt close to R4 trillion, or 81.8% of GDP by the end of this fiscal year
  • SA has approached international finance institutions to borrow $7 billion. Of this, SA has received $1 billion in funding from the New Development Bank.
  • The state will put aside R100 billion to create jobs, part of a "multi-year, comprehensive response to our jobs emergency".

In true, brutally honest Tito Mboweni style, he painted the picture of Greece, Zimbabwe and post-war Germany should urgent action not be taken. The debt crisis is escalating fast, with now 21c of every R1 the government receives going towards servicing debt.

It is certainly the crunch situation now for him and the ANC. And likely with the IMF or other institutions breathing down their necks to keep them honest too, which may not be a bad thing at all.

This speech followed the unemployment rate announcement of 30.1% in Q1 of 2020. It is worth noting that this came only 2 weeks after the lockdown began on 15 March 2020. Q2's figures are going to be even more uncomfortable than these ones, which are already the worst since 2002.

A comparison with the US who gives monthly unemployment numbers gives an idea of the seriousness of what SA is faced with when Q2 figures come out:

But despite all of these events and Tito's announcement, the Rand seemed to turn a blind eye to all of it. Much to the economists confusion.

It is a funny old game watching the markets, but you see the same things happening time and time again, as events which were seen as so critical have no effect on the short term value of the Rand.

And then in other news:

  • Over in the US, Donald Trump once again stole the spotlight, quickly reassuring panicked investors with only seven little words: "The China trade deal is fully intact". This was in contrast to the previous comments by White House trade advisor Peter Navarro, who hinted at a severing of ties between the US and China.
  • The US continued to battle Covid-19, with record numbers of daily cases continuing to be surpassed as states are beginning to panic in their reopening that it was too soon. Jobless claims have still not stopped, with another 1.5 million claiming this last week, again higher than anticipated.
  • SAA business rescue operation continued to wrestle to try get a solution to the company's debt crisis, and on Friday we finally got news that the Cabinet supports a restructuring plan and gave the thumbs up to an equity sale. SAA is not the only one battling these types of discussions, as Edcon is also battling to stay afloat with deliberations on a rescue plan still ongoing.

As for the Rand, we saw it range trading for the back half of the week, although strengthening significantly on Thursday after Tito's budget.

Friday saw some of those gains given back again, but the Rand still ending on mostly level ground at R17.30 to the Dollar at the close of South African trade.

This was despite the Dollar strengthening against most other currencies, pulling ground back in the latter half of the week against the Euro.

The Week Ahead (29 June - 3 July 2020)

As we look to the week ahead, there are a number of major events for us to which in the economic world, particularly in the US:

  • SA - Balance of Trade, Current Account Q1
  • US - Treasury Sec Mnuchin & Powell speeches, FOMC Minutes, Unemployment Rate, Non-Farm Payrolls, Jobless Claims, Trade Balance
  • UK & EU - Consumer Price Index

As emotions run high into this week over the surging of cases across the US, it is a time where persons will turn to being fearful once again, after a period of 'baseless calm', so to speak.

And it is when persons will try use logic in the markets.

Logic unfortunately doesn't cut it when it comes to financial markets because it is affected by emotions… and we all know that emotions are your worst enemy.

So we will be watching these events for triggers, but where does that leave the Rand?

We are expecting more volatility here too, and will be watching some key levels over the next week or so to confirm or invalidate our preferred Elliott Wave count.

We will be sticking closely to that count and our Elliott Wave based forecasting system, as we look toward a breakout from the Rand's holding pattern.

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(You don't want to regret not having done so this time next week...)

Look forward to hearing from you.

To your success~

James Paynter

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