Rand wins back the momentum and the week

Another week goes by...

...and it feels like another whirlwind went along with it.

The Rand in the midst of one of it's most volatile periods in years, and it is showing no signs of stopping. This week however, was one of its most successful in some time.

It wrestled back the momentum despite all that was going on, bringing a bit more stability to the market on the whole.

Investors and import/export markets gained some calm from this, following the rushes over R15/$...

So, will this trend that took the Rand to R14.13/$ on Wednesday last?

Let's start with the review...

As always, there was plenty of action locally and globally, during the course of the week. Here were some of the big moments:

  • Rand recovery - not a moment too soon, Saffers got some relief from the Rand pulling itself together to close the week in the lower R14s, after a tumultuous few weeks...
  • Donald Trump's tweet - a few characters posted onto Twitter created a hubbub of noise as the US President advised his Secretary of State to look into the EWC and Farm Murders situation in South Africa...there is surely going to be more to this story in the weeks to come...
  • SARS horror figures - as the investigation moved forward, more and more worms were coming out of the woodwork - irregular spending, huge losses and unexplained figures...
  • Land expropriation effect on banks - the focus of this discussion has been the point of view of the land owner, but what about the bank who has loaned those funds in a bond? The Land Bank released some telling stats...
  • Chinese Tariffs - there has been so much talk in the Trade War, and now it is resulting in actions. On Wednesday, 25% tariffs on $16bn of Chinese goods came into effect.

Well, what a week...

For once, the Rand was on the right side of it.

It had been a solid Friday the previous week, which had seen the market recover to R14.64 at the close of the week - a far cry from the R15.02 at the start of the day. Now it was to see whether the momentum could keep going.

And keep going it did. Each day provided more gains, through until Thursday.

Bit by bit, inch by inch, the Rand clawed back previous losses.

There was serious ground to make up, but it was heartening see the market below R14.20 on Wednesday evening...



And that was when the next bit of news hit, as Donald Trump fired off another Tweet:

"I have asked Secretary of State @SecPompeo to closely study the South Africa land and farm seizures and expropriations and the large scale killing of farmers. “South African Government is now seizing land from white farmers.” @TuckerCarlson @FoxNews"

This was major news, and resulted in widespread panic, relief, anger, and joy - it came down to your political stance.

The fact is: Whether Trump and the Fox News report have dramatized this (into saying that they are already seizing land without compensation) is besides the point. Importantly, it has raised global awareness of something that is JUST around the corner, with the ANC/SACP/EFF on a firm Communist agenda, whether it means theft of land with or without amending the constitution..

Whatever the case, this provided a trigger for the Rand to push back up again.

Thursday was a sell-off day, which took us to R14.44, along with some momentum and some good work undone...

There was more to the week than just the tweet though, and there were many newsworthy events:

  • SARS managed to get into the news for all of the wrong reasons again, as the investigation into the company revealed so many things - few of them good. Potentially, hundreds of millions of Rands have been lost due to inefficiency since a change in 2015 from the efficient operating model that Gordhan had introduced into the department. This change resulted in multiple key units being disbanded and members being left scattered throughout the organsation. This has resulted in a loss of efficiency, tax collection, and general tax compliance. What next for another 'same old story' government entity?

  • Inflation data for SA hit on Wednesday, and it came with some bad news - the SA Inflation had increased from June up to 5.1%, over against June's 4.6%. The Rand is said to be the biggest upside risk to the inflation rate, as well as the increase in VAT Rate, higher fuel and food prices.

  • As the land debate continues to fire along, it is clear that banks who have outstanding home loans to individuals and businesses are going to take a real pounding if this goes through as it currently is laid out. The figures are not entirely clear as to the situation as yet, but the Land and Agricultural development Bank has warned that if the government were to proceed on EWC, it would likely trigger a cross default clause when it cannot repay the state company's debt of approximately R41bn. The situation is a little hazy for now, but very concerning nevertheless...

  • On Wednesday, 25% tariffs on $16bn of Chinese goods came into effect. This was another indication that the situation was not all talk, but action too. Neither country was backing off, but during the course of the week, Chinese representatives were in the US for discussions on the matter. It is not currently clear what the results of those talks will be, but hopefully things stabilize from here.

  • The ANC and AgriSA held a historic meeting this last week where the ANC committed to protecting property rights of land owners, despite EWC taking place. How to reconcile this with other statements that have been made and the ANC's clear stance on EWC is difficult, as there is a lot of smoke and mirrors going on, and no sign of it clearing anytime soon. A large pinch of salt is needed with this one.

  • Then there was the contentious situation of the Chinese loans and investments. Despite it being good that there was foreign funding coming into the country, it was concerning to many as to the fine print on the deals. China would not put forward that much funding without there being significant upside for them - it is a question of what this is. However, Ramaphosa assured persons this last week that the Chinese Loans are no Faustian bargain. Simply put, Chinese colonialism rolls on - and is being welcomed with open arms.
The Rand recovered from its losses on Thursday to end strongly on Friday afternoon, pushing to sub R14.25 levels.

The Week Ahead (27-31 Aug 2018)

Well, after such a hectic week last week, what can we expect for the next few days and weeks ahead?

There are not any high impact fundamental events this week in terms of triggers, but don't expect it to be a calm week!

We have some key levels we are watching to confirm whether we have a larger degree top in place, or not - the next few days should tell...

Join us as we try and unravel the current market patterns for the next few days, weeks and months ahead.

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All the best for the week ahead,
James Paynter

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