This was a week which could not have ended a moment sooner for most...
...the Rand had a roller-coaster week of note!
As most got to work on Monday morning, it would have been disheartening to see that the Rand was already at R14.50 odd, and the week had only just begun.
Little did many know, until they looked a little closer into the charts...
The Rand had earlier touched R15.45 just a few hours earlier!
It then raced back from where it came, creating the most volatile period since the end of 2015 or start of 2016, when it comes to ZAR markets.
One helluva start for the week, but the volatility didn't stop there... But why, and where to from here?
Let's take a look...
The prelude to all this action actually came from Turkey. A crisis had hit in the Middle Eastern country - a financial one, and it was causing havoc. That havoc spread beyond just Turkey itself, as all emerging markets as well as the Euro took severe strain.
But there were many more events worth mentioning:
- US Dollar soars - the best level in 13 months against a basket of currencies meant that its strong position was even more fortified, causing weakness across the board in hard and emerging markets currencies.
- SA Stimulus package - a R43bn plan to stimulate the South African economy - something that Ramaphosa will be pinning his hopes on to get the economy going again...
- Moody's warning - slow fiscal consolidation (slower than government reports) meant that they issued a bit of a warning for what to expect from the remainder of this year.
- EFF Bill - the next big step from the EFF, as they introduced a draft bill to nationalize the SARB...not good news!
Well, where to start?
Simply put - the Rand fell out of bed early on Monday - with a bump!.
Waking up just after midnight, with an ominous 17c gap from Friday's close, the local currency seemed to just snooze restlessly for a couple of hours....
And then around 3 am, out of nowhere - it happened:
From nowhere, the Rand collapsed ... to lose all of 105c (yes, that is R1.05 or 7.3%) ... in just 13 minutes !
(just take that in for a second)
...and then - before many persons even knew - the market was back under R14.50, as the workday began around 8am.
By far, it was the most volatile of trading days in the Rand's recent history. It took us back to the days of #Nenegate and other events in 2015/2016 areas. A 130c range was set for the day - absolutely astonishing!
One thing was clear: the week was set up for MUCH more of the same volatility.
The blame for the collapse was put on Turkey's financial crisis. The Turkish Lira spiraled uncontrollably versus the Dollar in an even more extreme way than the Rand - it lost nearly 30% in value, taking it from 5 to the Dollar to 7 in just a few days, as Trump's trade decisions piled the pressure on the small economy.
Despite the dire situation, the Lira recovered by Wednesday to below 6 Lira to 1 USD. This was on the back of a $15bn bailout from Qatar, providing some stability. Also on Wednesday, it announced it was going to be putting tariffs on US products.
There were more than a handful of other events which headlined the week too:
- Moody's issued a bit of a rough warning during the course of the week where they pointed to their metrics on the South African economy as not tying up with government figures - and with that they warned of a lack of growth during the remainder of 2018...
- Ramaphosa announced a plan to rejig the economy and all that depends on it. This will be done using a R43bn stimulus plan which is expected to be a kickstarter for the economy. Included in this R43bn is funding for state-owned entities too - the question is: Where is this money going to come from? And how much of that money is going to sucked up just by bailing out troublesome SOEs such as Eskom and SAA...
- The Turkey crisis continued with the country refusing to release a US Pastor despite continued requests from the US. They are really shooting themselves in the foot by doing this, as the US has promised to continue upping the pressure on them, the longer they resist.
- Eskom finally reached an agreement with wage unions, hopefully resulting in the electricity supplier being able to stave off potential load-shedding if they can give the whole workforce firing on all cylinders...this remains to be seen.
- Finally, some positive news on the Trade War front, as China is sending a group of persons over to the US, for talks around the ongoing battle of words and tariffs. The focus of the talks is expected to be around Yuan weakness, indicating a US upper hand in the situation. This will take place next week, and will hopefully be the a step toward the a more stable and equitable global trade environment...
- The SARB announced that they will not take any action to support the Rand despite its collapse this week. They stated along the lines of ‘the Rand moves don’t warrant Bank intervention’. A wise decision!
- Another own goal was scored on Thursday evening for the Rand as the EFF announced that they had put together a draft bill for the nationalization of the Reserve Bank. Of course, this is something that has been on the agenda many years, but it is only going to add to the volatility caused by the EWC debate.
The same volatile climate continued in the ZAR markets right through until the close on Friday, as the Rand dashed over R15/$ for the second time in the week. Once again, it broke lower from its high for the day of R15.02, to end the day closer to R14.80...
...some relief to end the week, but one of the most unnerving weeks in recent times meant that everyone ended the 5 days of volatility on edge. What next...?
The Week Ahead (20-24 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.
All the best for the week ahead,