A rosy November suddenly seems a long time away a battling Rand...

The plague of Eskom, Land Expropriation and political disunity continued to hurt the local currency...

...not to mention the Trade War resolution seemingly capitulating...!

On the other side of the scale, the was some positive news on manufacturing and more.

But this was not enough, as the Rand spiraled in the latter half of the week!

Thursday at one stage had a 3% loss for the ZAR against the EUR & GBP (before a mini ZAR recovery) - pretty scary...

But there was more to the week than just this - and more importantly - where we were in terms of our longer time-frame target & invalidation levels.

Let's take a dive deeper to understand where we sit currently...

To start with, here are some of the biggest headlines of the week:

  • Eskom debt - this is out of control, as all of the worms have started to come out of the woodwork. It will take a miracle for this SOE to be saved...
  • GDP data - massive growth pulls SA out of technical recession! Huge news for the economy - may it continue!
  • Land expropriation - the next steps have been taken by the National Assembly and National Council of Provinces...
  • Trade War resolution - things were looking so rosy last week following Trump's supposed agreement with President Xi of China. That didn't quite materialize...

The week began on a strong note for the Rand.

It had just been the best November in 15 years in terms of Rand strength, and the momentum was building for this trend to continue.

The Trade War had finally stabilized with Trump seemingly have agreed with President Xi for a 'cease-fire' on tariffs...much needed news for emerging markets.

But then - the week actually got underway, and it did not go so smoothly.

Firstly, Eskom's situation in terms of debt and upcoming load shedding became clearer:

  • Eskom is running out of coal, and is now trying to source low grade coal on the market. This coal is damaging to the furnaces, which are already in need of repair.
  • They are wanting the government to take on R100bn of its debt as part of its rescue plan to continue operating.
  • Analysts expect up to 5 years of load shedding, with a possibility of up to 16 hours a day in worst case scenarios.
  • The President will be assembling a task force to try and turn Eskom around. But who knows... maybe it is already too late?

This was very poor news for the economy.

To make matters worse, on Wednesday, the CRC's report which recommends the amendment of Section 25 of the Constitution was adopted by the National Assembly. Following that, the NCOP (National Council of Provinces) adopted the report as well.

The uncertainty of Land Reform is extremely detrimental to the economy and stability of the Rand.

This was shown by the first half of the weeks' movements:

But then on Wednesday, we had SA Current Account & GDP releases, and the Rand simply turned on its heels and ran for the door....confusing journalists and economists alike.

And here is why - the news was positive for the economy and Rand!

This meant SA was out of technical recession - massively important to investor confidence in the economy...

However, the market's seemed to see the dark side of the news (proving once again, that you cannot trust news to give market direction!)

The Rand lost significant ground on Thursday, and at one stage was staring down the barrel at 3% loss during the day's trading...

...thankfully, a mini recovery meant the ZAR closed around R14/$, and just below R16/€ and R18/£.

There were some other big headlines to the week:

  • US China Trade seemed to start on such a positive note at the beginning of the week. The news was that the US would pause its plans to raise tariffs on $200 billion (R2.76 trillion) worth of goods from China. China would do the same from their side, also removing some of the tariffs that the US had taken exception to. Surely now, emerging markets were going to catch a break? Surprise... They didn't!...and it all went downhill from there. Trump came out firing on Twitter, once again, causing all kinds of trouble, calling himself "Tariff Man", which didn't help investor confidence. On top of that, Canada decided this was the moment to arrest Meg Wanzhou, CFO of China's biggest Tech company, Huawei!
  • Pravin Gordhan seems to be trying to take the Eskom situation by the scruff of the neck, with some very honest talk to the public at a press conference.. His promise was that there would be "no dark Christmas", which is a tall order considering the gravity of the situation. In the mean time, load shedding continues ... but, for now, the National Treasury has approved Eskom's emergency procurement of diesel to power additional turbines (in hopes of limiting load-shedding).
  • US Jobs data came through on Friday, with 155k jobs being added - a slower month after October's huge 200k plus addition. Unemployment was solid on the record low of 3.7%, and the average earnings also increased slightly.
  • Petrol prices have really come to the part for the holiday season, as there was confirmation of the near R2 decrease in petrol prices. This could not have come a moment sooner after a torrid 2018 for motorists, with oil prices just pushing fuel pricing higher and higher. Now that Oil is back under control (sub $60 a barrel), we have seen a huge retracement in fuel pricing... May it continue!
  • Tito Mboweni's job as finance minister of SA is at a very difficult time, and he has so many different aspects to consider when making any decisions. This makes for a lot of uncertainty, but one thing is clear: he MUST improve South Africa's credit rating to pull the country out of junk status territory. He is clear on this, that it is a priority, and he is hoping to revive the economy to ensure this...

Friday provided another choppy day of market movement, where we saw the market initially top out at around R14.18, drop down to R13.92, and then back up to R14.19!

Overall, a pretty rough week for the Rand, with many hoping that there would be some more stability heading towards shutdown...

The Week Ahead (10-14 December 2018)

However, there are a lot of variables as we go into this week...

The ongoing interesting situations globally are all triggers for moves:

  • Brexit... the parliamentary vote in the UK is upcoming this week. This will be huge for the Pound.
  • Trade war tensions - these have been plaguing the markets, and hopefully will settle down a bit this week!
  • And locally, of course, it is Eskom, load shedding, and land reform...

Then we get into the economic events!

The ECB is making a call on their interest and deposit rates, and there are some speeches and stats due to come out from the US side of the pond.

Locally, the biggest event is SA's inflation rate figures. This has been on the rise the last few months, and is of grave concern to SARB. Many will be watching this closely...

So lots of diverse news and events to look at...

But, we will say it again:

The fact is, these will never be direction givers -

because the markets do not work that way!

Instead, we have found the best way is to forget looking at these for direction, and simply listen to what the market itself is saying - though price action and patterns of sentiment they display...

This is what the Elliott Wave Principle (our forecasting methodology) provides, which we use together with a combination of price-ratio analysis, momentum and time-cycle studies to give clients the most likely outcome for the next few days, weeks, months and years ahead - based on past similar price patterns.

To see what we see as the most probable outcome over 4 timeframes, why not give our Rand forecasting service a 14 day test-drive.

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To your success~

James Paynter

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