Rand on the back foot as 2018 draws to a close...

Welcome to our last Rand Review of 2018...

Phew!

A tumultuous week draws to a close...what next?

The Rand was relatively stable despite the week, but really, what next was going to be happening globally and locally?

With just a few days left in the year, it seemed the speed was only increasing.

Brexit, Trade Wars, Theresa May, Load shedding, Eskom, Moyane, SARS - what did we miss?

Anyway, moving on, let's get to the finer details - and how the Rand dealt with it all.

Here are the biggest moments of the week:

  • Brexit no-deal - the biggest talking point of the week, as Theresa May's push to seal Brexit as quickly as possible ended in a complete flop...
  • Vote of no confidence - which lead to the next step from the House to try and remove her from office!
  • Trade War - the simmering pot calmed momentarily, as there appeared to be some stability added back into US-China relations...
  • SA Inflation - all important figures came through to show a worrying trend continuing - but some slowing brought hope to SARB.
  • US & SA data - plenty of economic figures were due, such as manufacturing, inflation, mining data and more!
The week started with a countdown to the Brexit vote...

Since the green light had been given by the EU, the last major step in the way is the vote from the UK. This was the day...

...and then it wasn't.

Not for the first time, Theresa May's support came up severely lacking. So much so, she had to call the vote off, as she was obviously sure that it would not be successful.

This triggered the next step of the tumultuous past few weeks...

...sufficient letters of no confidence in the PM were submitted, triggering a vote of No Confidence.

All this drama did its best to collapse the Pound, sending it to an 18-month low against the Dollar.



But, because events like this are only actually a trigger for market movement, not direction givers, we soon saw the market retrace. This often happens - a short term effect of an event is seen, but then a quick recovery.

Anyway, Theresa May survived the vote of no confidence quite comfortably - although she is now seen as a lame duck with poor support, and is also not intending to lead the party into the 2022 election. She is safe for 1 year, but it is tough to say what she can possibly achieve during this time.

As for the Rand, the first half of the week was pretty rough, as the market chugged up to hit R14.47 to the Dollar on Monday afternoon, before we saw some good retracement on Trade War news.

It seemed that US-China relations are back on positive footings as China resumed importing of US soybeans. On top of that, Trump announced that they are looking to intervene in the case of Huawei CFO to avoid a further decline in US-China relations...

The Rand liked this, and pulled back from near R14.50 levels to closer to R14/$ again!



Economic figures also dominated the week with lots of results coming through:

  • Inflation beat expectations as it only increased to 5.2% (0.1% increase), which while negative in figures, was a slowing of a worrying trend over the last few months. SARB will be hoping they can turn it around in the months to come.
  • SA Manufacturing data came through strongly, indicating a 1.2% month on month growth which was more than double what was forecasted!
  • Along with that, Mining Production also managed to more than double the predicted forecast, increasing by 3.3% month on month.
The Rand stabilized on the back of all this, to end Thursday around R14.15/$...

There were some more headlines which caught our attention this week:

  • SA Stocks have had quite a 2018 - much the same as the Rand! All of 14% has been lost by the main JHB index thus far, and if fear is anything to go by, the stocks are due for a turnaround - but we have not done any analysis ourselves... This is Bloomberg's view, saying that they believe that we are due for a rebound in 2019. We will have to see how it plays out, but it would be long overdue!

  • Jacob Zuma is in further financial trouble (well, relatively speaking - who knows how much the Guptas are still feeding into his foreign bank accounts) - as the court ruled that he is responsible for all of his legal fees. It certainly has been a year of justice and corruption clearing in SA, but there is a long way to go before there properly managed utilization of state funds etc.

  • SARB's shock decision to up interest rates last month means that analysts are watching a lot more closely for future changes. The feeling at this stage is that we are looking at another change in interest rates only in May 2019... But they will have to keep a close eye on the exchange rate, and the worrying inflation trend. This will be watched closely heading into the new year.

  • The political motivation behind the EWC debate was exposed once again on Friday, as a legal expert estimated that the State has approximately 1.2 million hectares of land available for redistribution... and yet they want to expropriate more before distributing that?! It makes no sense, and proves it is a political move and nothing else. If they cared about giving land to those who are starved of it, SURELY this would be distributed first - it is quicker, easier and doesn't require any displacing of current owners...it really is a complete exposure of the basis for this Communist agenda!
The Rand lost ground on Thursday evening, eventually moving to hit R14.46 to the Dollar on Friday evening. It was not the end to the week that anyone wanted to see ...

...this was following concerns over Chinese growth, as they have battled the mighty force of the US during the 2018 Trade War.

Eventually, there seems to be light at the end of the tunnel on this subject, as Trump tweeted late on Friday:

"China just announced that their economy is growing much slower than anticipated because of our Trade War with them. They have just suspended U.S. Tariff Hikes. U.S. is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!"

This didn't seem to have too much positive effect on the Rand however...as we closed around R14.40/$!

The Week Ahead (17-21 December 2018)

Well, what a year is drawing to a close.

It has been a very tough one for the Rand, as we saw the different stages:

  • We started the year at R12.35/$ on the back of the ANC conference
  • The Zuma era finally ended
  • Ramaphoria took the Rand beneath R12/$
  • Then EWC (Expropriation without compensation) became the talking point of the year, killing the strong momentum the market had built up
  • The US-China Trade War dominated headlines, hurting Emerging Markets like the Rand
  • SA's economy stuttered, eventually falling into technical recession
  • The Rand spiraled in the latter part of the year, hitting R15.70/$ briefly
  • We are ending the year trading a little closer to R14/$, in a still very choppy environment, with Brexit, Trade Wars, Eskom and more, taking us into 2019...
So, quite a year! What do we see for 2019 is the question...?

Well, this will be our last week of forecasts this year (final one on Wednesday the 19th), and our longer term predictions are shaping up to show that we are looking at some crucial levels heading into early 2019.

What events will trigger what our forecasts are saying is unknown to us...

...but having been in this game since 2005, I've learnt to trust the forecasts, even when my gut says otherwise.

So, all the best for the remainder of 2018...and to your success in 2019!

Best regards,

James

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