A very Happy New Year to each and every one of our members, and welcome to a brand new year of our weekly Rand Review!

Look back, 2022 was a difficult but fascinating year in the markets, as experienced period that will go down in the record books as one of the toughest in economic history…

… and one which we thankfully managed to navigate with a helping hand from our trusty Elliott Wave-based forecasts, of course.

We’re delighted to have you back this year and can’t wait to see what the new year has in store.

So, without further ado, let's climb into our first Rand Review of 2023!

Key Moments (9-13 Jan 2023)

Here’s what you may have missed while we were away:

• Emerging Market Relief - The Rand and most emerging markets have started the year on the front foot as inflationary pressures show signs of subsiding and major market players re-enter the fray.
• US Inflation Retreats - After almost a year of strict and unwavering monetary tightening policies, inflation in the US has shown further signs of easing, and the focus now turns to assessing the effects of months of choking borrowing-cost increases.
• China’s Comeback - After what feels like a lifetime of waiting, China is expected to make a full return to economic activity in 2023 after easing almost all of its debilitating 'pandemic' restrictions.
• New Year, Same Old Eskom - Unfortunately for Saffers, Eskom has already indicated that this year is likely to be even worse than last, kicking off the New Year with Stage 6 loadshedding within a week of turning over the calendar.

A new year means new hope for country and economy, and it’s been pretty good so far as the Rand is concerned.

As investors gear up for a fresh year of trading, the initial indications suggest that inflation pressures in the US are expected to subside, which will have a major impact on countries like SA that are highly susceptible to global market forces...

...but, of course, in what direction these forces will have an effect will depend on the current sentiment diving the market at that time.

On Monday, the local unit opened trade at R17.07/$ and was on the front foot early as expectations grew on a further slowing of inflation in the US.

After peaking at R18.50/$ levels in early November, the Rand has made a slow recovery and kicked off 2023 by breaking below the R17/$ psychological barrier.

This was aided by the greenback having retraced from its record heights in Q3 of 2022 on the back of the US Fed's aggressive path actions to curb inflation rates that had reached over five-decade highs.

With soaring oil, energy, and food prices, investors had piled into the Dollar as a safe-haven in a turbulent economic climate, which left emerging markets like the Rand with nowhere to hide.

The recovery has been slow and painful, but there is a growing feeling of optimism - albeit slightly premature - and economies that have taken a beating in recent months will gladly take whatever they can get for now.

The Rand broke below R17/$ by midday on Monday and teetered in the R16.90/$ region for the first half of a thin week of local economic data.

The star of the week was the US inflation data due on Thursday, and we started to see more significant market movement in the build-up to the release, where the local unit dropped below R16.90/$ by midday of the release.

A few hours later, reports were making their way from the US, confirming that the inflation rate in the world’s top economy did improve in December.

The annual reading showed that inflation declined to 6.5% in December, down from 7.1% in November, marking a sixth consecutive month of decline.

The major driver of the reduction was cheaper gasoline prices which tumbled by 9.4%; however natural gas and electricity increased by 3% and 1%, respectively.

While the headline US inflation reduction is a welcome site no matter where in the world you reside, the facts still show that inflation remains stubbornly high…

…and has given even fewer signs of slowing in other major essentials such as food, energy, and housing costs.

Like most markets, the Rand benefitted from the inflation results in the US and swiftly dropped to R16.70/$ by mid-afternoon, which was a level last seen over six months ago.

The question that now remains to be answered is:

It’s going to be interesting to see how it all unravels in the coming months!

One of the major factors that the world will be keeping an eye on to help return the global economy to some sort of normality is the developments around China and their re-emergence.

The world’s second-largest economy contributed significantly to the global economic difficulties last year, and while reports allege a surge in infections in the country, pent-up demand may have begun to force the hand of the authoritarian leadership.

As China reopens its economy, perhaps the most interesting development to watch will be how oil prices react with the world’s largest consumer of oil back in action.

Much of the inflation easing in the US can be attributed directly to lower oil prices as a result of reduced demand; however, those prices could be on course to push back above $100+ per barrel levels if China’s demand grows.

What will that mean for global inflation?

Well, it’s not a pretty picture for households and businesses, that’s for certain.

All the while, the double-edged sword continues to be sharpened.

Through all the difficulties and the US Feds' best attempts to cool the economy, unemployment rates and consumer spending has seemingly remained resilient despite several high-profile layoffs in the tech and finance industries.

The most recent jobs report showed that the US economy created 223,000 jobs in December, potentially leaving room for the Fed to continue hiking rates for some time to come. But again, the question is, how many of these are second and third jobs being taken in order to make ends meet?

A tricky situation indeed, and just another layer of uncertainty that we will have to wait to see play out.

Meanwhile, the Rand managed to hold on to its gains on Thursday and closed at R16.72/$.

Then in other news:

• The UKs economy grew unexpectedly in November; however, this did not alter the expectations of the Brits entering a recession as the country faces one of the most fierce cost-of-living crises in history. GDP recorded a minute 0.1% increase despite widespread and intensifying strikes. However, in the three months to November, GDP shrank by 0.3% when compared to the three months to August.

  With inflation still standing firm at 10.7%, the highest in almost four decades, the brief uptick in the GDP can’t mask the underlying problems that the UK economy faces, and we are yet to see how long and deep the hole they are in really is.

• After a year to forget for cryptocurrency backers, 2023 has started well for Bitcoin and Ethereum owners. The world’s two leading cryptocurrencies have been rallying well and were among the biggest jumpers following the US CPI results. Bitcoin recorded a 3.3% increase on Thursday evening and went on to break back above $19,000 by Friday morning, while Ethereum spiked by 2.8% within hours of the CPI release and peaked at just over $1,400 before the week closed. Ethereum has now recorded a 14% rally since January 8th, and crypto bulls are eyeing a possible return to $1,600 levels in the coming months.

Heading back home, the Rand opened Friday in the mid-R16.70s, and after a sharp reversal in the morning trade session, the local unit eventually ended the week around R16.80/$ and (from an economist viewpoint) looking promising…

…but as for the country, there there is still one major hurdle that threatens any sustained improvement for the country.

Eishkom!

The battling power utility announced Stage 6 loadshedding until further notice, owing to an almost unbelievable 11 simultaneous breakdowns at various plants in the week.

Over the last few years, South Africa’s economic growth has hovered at dangerously low levels, which has had a knock-on effect on attracting investment, a key driver of developing economies…

…and a major contributor to the low growth levels has been Eskom and the increased frequency and intensity of loadshedding and breakdowns.

With a key electricity tariff decision scheduled for next week, businesses are calling on the government for stricter and more decisive action to be taken in terms of energy sector reforms.

Unfortunately, due to the state of Eskom’s problems, any reform will take years to fully implement, and until then, the likelihood of change is more hopeful than expected.

The Week Ahead (16-20 Jan 2023)

With the holiday season now come and gone, normal activity will resume, and these are the major headlines we’ll be keeping an eye on over the next five days:

• SA: Inflation Rate YoY (DEC), Mining Production (YoY), Retail Sales MoM (NOV)
• EU/UK: Unemployment Rate, Inflation Rate YoY (DEC), Core Inflation Rate YoY Final (DEC), ECB Monetary Policy Meeting Accounts
• US: PPI MoM (DEC), Retail Sales MoM (DEC)

And just like that, we’re already halfway through Month 1 of 2023, and the global economy already seems abuzz.

The early signs for the Rand are definitely positive, but can it last?

If there’s anything that we should have taken away from 2022, it would be realizing how quickly things can change...and then change again!

Based on our updated cycle and Elliott Wave-based analysis, we are anticipating an interesting ride the next few weeks and months for the Rand, with some likely unexpected twists and turns...

...ones that not take you by surprise if you have our GPS on your dashboard to help you navigate the road ahead - with clarity and confidence.

Let us help you enjoy the journey!

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