What a week! Another one.

  • Huge volatility? Check
  • Massive losses from the word go? Check
  • Ending the week on a low note? No. Not this time round.

The saving grace for the local currency was its turnaround on Wednesday. The midweek hump ending up being the turning point for the ZAR, and about time too.

The first part of the week was seriously rough, as we saw another 50c just sliced from its value - with no clear evidence of what was causing this...

...leaving economists scratching their heads

...and importers biting their nails.

So...maybe just another normal week for those following the volatile ZAR 😉

Let's have a look at how it unfolded!

In a week sending the Rand from pillar to post, there were some big events worth mentioning -

  • Trade war fears - it continued to simmer, and it was brought back to boiling point this last week, as the US and China went head to head...
  • Rand turnaround - not a moment too soon, the local currency pulled some tricks out of the bag in the latter half of the week.
  • Eskom saga - the load shedding problems continued on during this last week...with damage to the economy and business surely happening as a result of it.
  • Fuel price woes - with oil prices refusing to relent, fuel prices continued to hold higher...
  • Transnet probe - a final conclusion came to the long awaited probe was completed, and justice was to be served for the 1064 locomotives which were bought from Chinese companies in 2014...

Once again, Trump's actions seemed to dominate the global headlines this week, both nationally and internationally. Alongside that, the Soccer World Cup was grabbing everyone's attention - even the banks were getting in on the action as usual, predicting what match outcomes were going to be!

The US-Mexican border continues to attract attention and drama, with Trump averting a crisis by signing an executive order on Wednesday that would keep families together after they get detained crossing the border illegally.

But in terms of economics, it was all about the China-US trade war.

Until the end of the previous week, it had been a war of words.

Then Trump signed the $50bn US tariff. And China returned with a similar proposal, but on US goods, also totalling around 50 billion US Dollars.

On the back of that, Trump went on full attack: He got the US Trade Representative to draw up a further list of products worth $200bn that would face tariffs of 10%, and threatened yet another, covering an additional $200bn of goods, if the Chinese retaliated again.

This global uncertainty is, as always, very disturbing for the markets.

We saw markets like Dow Jones trade lower each day for 8 straight days, with economists pointing to "Trade War Gloom"...

...and then there was the Rand.

It'd been a miserable June already for the local currency, and it just seemed to be continuing in the first half of the week.

After opening below R13.40, we saw the Rand just keep barreling onwards toward R14/$...

But thankfully, that was where it stopped for the local currency...

After punching as high as R13.91, there was finally some respite in the second half of the week, as we saw the market reverse from that point. It was long overdue, as the poor ZAR had lost all of 14% in value during Q2, making it one of the worst emerging market currencies...

...the Ramaphosa new dawn certainly was not transpiring into some Rand strength.

Despite this weakening, it appears that the South African Reserve Bank won’t be taking any sudden action to bolster the currency - a wise decision.

...remember, It never pays to fight the tide.

The snippet of good news we got on Wednesday was enough to provide the trigger for that pullback, as SA's inflation figures came out better than expected...

...unfortunately, in reality, most of those gains will be erased by the weak Rand & fuel prices.

Some of the other talking points from this week -

  • The inflation data boost which the Rand got was due to to a fall from 4.5% to 4.4%, when it was expected to be 4.6%. A small change, but a step back in the right direction (if these official stats can be believed - they do not seem to reflect what is happening on the street).

  • The other talking point was SA's current account figures, which also came out this last week. Consensus was for the deficit to have risen to -ZAR177 billion during the first three months of the year. When the figures hit, however, it was even worse than anticipated - SA's Q1 Current Account Deficit came out at -4.8% of GDP, instead of the expected -3.9%. nearly doubling the ZAR-100 billion black hole seen in 4Q2017. Yet, despite this, the Rand strengthened strongly on the back of this news (which was on Thursday) as it moved down below R13.60 (explain that one, economists!)
  • CurrenciesDirect highlighted some big events over the next month, which we thought were worth mentioning:

    29 June: SA Trade Balance

    5 July: US Fed Meeting Minutes

    6 July: US Job numbers

    12 July: US Inflation

    16 July: Chinese Q2 GDP

    While these are not all necessarily going to have a big effect on the Rand, they will be worth watching closely.

  • Transnet...another one of the 'problem child' state-owned companies. This week brought an end to the investigation around the 1064 locomotives which were bought from China, resulting in massive debt for the company.

    It was concluded that the top officials of Transnet were to be held liable for what happened. The terrible decision resulted in a R15.9bn increase in debt for the company...what where they thinking?!

  • Alongside Transnet, was Eskom. Load shedding fears continued this last week, and who knows how long into the future. What was the worst about the whole situation is that Eskom had promise all was well...only for everything to change just a few days later. What damage has this already done to the economy?

So...a heap of bad news economically in SA. Yet, take a look at the Rand over the remainder of the week:

A welcome change of sentiment as the the Rand managed to regain all the ground lost to end the week at R13.43/$ ...

A truly amazing turnaround!

The Week Ahead (25-29 June 2018)

While the Rand ended the week on a high note, it must have celebrated its win too much over the weekend, because its performance from the word go this week has been rather abysmal, with the Dollar steadily pushing higher...

...it appears we are going to be in for another roller-coaster of a week.

And with global markets rather jittery - and trade wars likely to simmer on - we should not expecting the volatility to end any time soon.

Is this the new normal?

We will be keeping out eyes carefully on this market over the next few days, and suggest you do the same.

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Kind regards,

James Paynter

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