Well, well...against all odds you might say, we saw another week of risk-on sentiment and Rand positive movement.
And boy, it could not have come a moment sooner for importers and consumers alike (and for those exporters who had taken out forward cover prematurely).
But how could we have seen this coming?
There was so much negative, yet the Rand was 'focusing' on the positive?
Why is this?
Why does the market always seem to defy our expectations - again and again?
Read on...let's take a look at the whole week and explain it for you.
So firstly, here are some of biggest headlines from the 5 days:
- Massive US unrest - protesting which led to rioting, looting and anarchy filled the streets of major US cities, creating uncertainty across the whole country.
- US unemployment - after another stack of jobless claims, the unemployment rate was due on Friday afternoon SA time...how bad would it be?
- SAA bailout - yet, I repeat, YET another bailout of the "cash black hole" airline, despite the tightness of funding, despite Covid-19, despite everything…
- Rand value manipulation - the Competition Collusion case rolls on with more banks added to the list of manipulators...
So, let's start at the very beginning:
Monday's open saw the Rand trade at around R17.60, after a strong previous week.
Many, still stuck in Rand-negative sentiment because of the seemingly endless devaluing over the previous few months, were expecting this week to be the one where the Rand turns around and sails back towards R19/$.
One would expect that all the Rand needed is one negative local event, and we would see everything fall apart again.
I don't know, maybe something like SAA going bust and being bailed out again?
Right on cue, there it was.
Another R4.6 billion which taxpayers would have to cough up for the airline to keep on functioning.
Why?
What sense is there in doing this?
The answer is that there isn't any...
...but to get back to the Rand - you would think this negative trigger would send is spiralling weaker, especially combined with some Monday blues?
No, not at all.
In fact, the opposite, as we saw it strengthen over the coming days to break clean through R17/$ and R19/€.
So, instead the headlines read to the effect of "Lockdown relief and manufacturing improvements boost Rand"...
...instead of "SAA Bailout creates investor fear as Rand tanks".
So obvious...and yet so subtle is the after-the-fact analysis, that most persons just lap it up. You, as reading this newsletter, will hopefully see things differently after watching this video on the "Fear & Greed Meter".
It never gets old, as you see the same patterns playing out again and again.
Just remember, when there is no one left negative, and all are positive, we can expect the market to turn again.
Those who are still negative now, will ONLY finally turn positive when the market is in its last wave stronger and is about to turn...
...and they are left making another wrong, emotional decision.
As an alternative to that, what we do is release to our clients emotion-free, objective forecasts on the Rand vs Dollar, Rand vs Euro and Rand vs Pound twice a week.
Below is the same forecast we showed last week, which shows just how smoothly the Rand has moved in line with the Elliott Wave Patterns:
You can click to enlarge the forecast, and what you will see is how we showed sentiment at an extreme with the Rand due to top out shortly. Over the coming weeks, that was exactly what we have all seen...
And while no system is perfect, this just shows the power of the Elliott Wave Principle to be able to predict changes in sentiment before they even happen - even when rational logic says otherwise!
And then in other news:
- Over in the US, widespread protests broke out in major cities, which originally stemmed from the death of George Floyd at the hands of police, but has since spread to much more than that, as government officials and police battled to keep any control of the situation, many cities experiencing organized anarchy, with rioting, looting, destruction of property and some horrific violence. Uncertainty this time lay with the US for once, more than South Africa...
- Despite the poor SAA news, it seemed as if the airline industry was trying to get going again, with a very slow recovery of travel beginning. Ramaphosa insisted that he sees a good future for SAA and Eskom the other side of Covid-19. But how much can be read into this as being accurate so much as trying to get funding to keep the two cash black holes going, is anybody's guess.
- And with that discussion, was the ANC looking to new ways to boost the South African economy, which meant that pension fund debates were back on the table again, as well as the proposed creation of a state bank and other ideas. All of these were toothless, weak suggestions which did not pave much of a road to recovery.
- And the headaches just continued, as although it was a reduced figure, the treasury is estimating 1.8 million job losses — significantly less than what was expected of closer to 3 million, but still a critical level of losses.
- Also back in the headlines was the Competition Collusion case of Rand value manipulation, with now another 2 banks joining the original 28 who were charged. The latest two are Nedbank and Rand Merchant Bank, showing just how widespread the corruption and crookery was, as with time there have just been more additions. It is quite ironic how it is the same banks who are manipulators are ones who are anti-cryptocurrency because it promotes fraud and money laundering!
As the week ran on, we saw the USDZAR keep strengthening toward new levels of strength not seen since the series of March blowouts...
And lastly, some economic news on Thursday, as we saw the ECB increasing their stimulus program by EUR600 billion to EUR1.35 trillion. Their emergency bond purchasing program has further been extended to June 2021...
...this would suggest that the Covid-19 effects are clearly far from done.
And then you had the US on Friday with their Non-Farm Payrolls & Unemployment Rate, which was expected to make for horrific reading.
US non-farm payrolls printed at 2.5 million jobs created instead of the forecasted 8 million job losses. Also, the unemployment rate cam in at 13,7% versus an expected 19%.
Never before have US figures really come into question in terms of economic statistics, but this is the most confusing release of data we have ever come across. If the country was in lockdown and you see the number of jobless claims still coming in, how can such a number be possible?
Some clarity will come in, no doubt...
...and that was the wrap as the Rand closed out the SA trading day at R16.85!
The Week Ahead (8-12 June 2020) |
As we look to the week ahead, there a number of events over the coming days, with some of the major ones being:
- SA - Unemployment Rate Q1
- US - Fed Rates decision (& press conference), Jobless claims & Retail sales
- UK & EU - both GDPs & UK Unemployment Rate
And then we also have the ongoing civil unrest in the US, US-China tensions and Covid-19 lockdown measures gradually being lifted.
And where to for the Rand?
Well, once again, we won't be looking at the above events to give us direction.
We will instead be watching what the price action in the markets is telling us (based on the evolving patterns), to give us an idea of where we are headed.
And based on this, the next next few days and weeks should be very interesting - and will likely take many unprepared persons by surprise...
...please do not be one of them!
To get a look at what charts we are looking at and using to give direction, use the link below to get access to the latest forecast. No charge. All yours for 14 days.
(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
