The Rand's 2019 Bull Run continues

Welcome to 2019 - or rather, our first Rand Review of 2019, as back-to-work mode starts in earnest. Trust you have had a well-deserved rest and are refreshed and charged for the year ahead.

As for the Rand, we seem to be off to a flier already...

Only 2 weeks into the new year, and the Rand has made huge strides in the right direction, to start the next crucial 12 months on the right foot.

It probably also has a lot to do with with the global outlook right now...

To recap:

  • The US Government is still in shutdown, with President Trump on the verge of declaring a national emergency to end the shutdown and secure his funding for the border wall...
  • Brexit is getting messier by the minute. Who knows what is coming next...
  • The Trade War is continuing the keep us on tenterhooks, as we wait for the next play...
And then there is the Rand, with its own challenges locally, sitting in the middle of it all!

So, let's take a look at how the week played out...

Here are some of the big events from the week:

  • Government shutdown - turmoil in the US as the government shutdown extended to the longest in the history of the USA...
  • US-China Trade Talks - positive news on the Trade War front, as in-depth trade talks between Chinese and US officials took place, bringing stability to emerging markets
  • Brexit fiasco continues - over in the UK, the Brexit situation was not getting any better as Theresa May suffered further setbacks
  • Oil temporary recovery - it seems we may not get another petrol price derease as Oil has staged a mini-recovery...
  • 2019 Election predictions - it is getting to that time again, with the first real predictions starting to be bandied about before the 2019 General Election in SA
So, the Rand kicked off the week sub-R14/$ - always a good start to be under that psychologically big level!

Thursday and Friday of the previous week had provided some really big strides forward, taking us from R14.60 to end the week below R14.

This was on the back of US Non-Farm Payrolls on Friday... (which made phenomenal reading - 312000 jobs were added instead of the expected 176000!)

Many events were scheduled during the week, such as Brexit preps, the working out of the US Government shutdown, trade talks and Fed speeches.

The US Government shutdown was a mess.

Determined to get the border wall funding, President Trump has refused to reopen the government until this is agreed to by the Democrats. This has meant turmoil, with departments such as the SEC, TSA Security, National Weather service and more all running understaffed and completely unpaid.

Yet, the fight rolls on. No one was backing down by the end of Thursday, with Trump expected to possibly declare a state of emergency!

At the same time, Theresa May tried to rally support for her Brexit proposal.

It didn't work.

She was voted down in Parliament, meaning that the government will have to come up with revised plans within three days if Mrs May's EU withdrawal deal is rejected by MPs next week. This made things really tight, possibly opening up the door to a Brexit referendum.

The British Pound and Euro are caught up in the midst of this mess, as well as countries like South Africa due to strong ties to the UK...

...one thing is for sure, and that is that things are getting really tight now for PM May.

The pressure pot is reaching boiling point - what's coming next?

If the pressure pot explodes, the Euro and Pound are going to be in the firing line, one way or another!

As for those trading the Rand, they seemed completely unflustered by all that was going on.

The market stayed very stable, with a small range of around 20c the whole week (14.06-13.82), tracking ever so slightly stronger.



This was not all bad news at all for a market which generally is under fire from every direction!

As we headed into Friday, the ZAR was a touch under R13.90...

Other big talking points for the week were aplenty:

  • The trade negotiations between the US and China - this mid-level trade talk was the first face-to-face interaction between the two superpowers since the 90-day truce. These talks seemed to go in-depth, resulting in the US pushing China later in the week to some of the promises that had been made. It is not clear yet what has actually been discussed, decided or promised, but it dos appear that progress is being made...

  • That news was good for emerging markets (especially the rand), particularly when combined with US Fed Chair Powell’s comments that the Fed ‘had no pre-set plans’ and was ‘listening’ to markets for signals as to when to raise interest rates.

  • The challenges are aplenty for Ramaphosa when it comes to State Owned Entities, and it didn't get any easier this last week. A second member has resigned from the task team dedicated to Eskom, which will surely slow the team's progress. Good news did follow however, as common sense prevailed with job cuts continuing of top executives, and now moving to the lower ranks too. This has to happen for the completely over-inflated workforce and salary situation to be addressed...

  • ...speaking of which, South African Airways is still in the thick of this. They have been bailed out again with R35bn in the form of a loan, to keep going until March 2019. How much longer will this bloated money-sucking leach continue to plague the government...?!

  • The World Bank issued its forecasts for South Africa's GDP in 2019, and they did not make for good reading. A mere 1.3% growth is expected...but it is worth mentioning that it cut all of its 2019 global growth forecasts (blaming trade wars as the reason for this), which is now at 2.9% and emerging markets down from 4.7% to 4.2%. So, in a year which looks set to be a tough one economically across the globe, SA has fallen way behind fellow emerging markets...

  • SA General Elections are suddenly just around the corner, and predictions are already starting to arise - but it looks like there will not be too much different from years gone by. The ANC looks set to dominate the elections according to analysts, with the EFF and DA losing ground in supporter trust and confidence.

  • One last snippet of good news to end off was Moody's upgrading the outlook for African banks from negative to stable, which is huge in the overall stability of the continent.
As for the Rand, it kept quieter than we have seen in many weeks! Friday saw the market trade in a mere 12c range through the 24 hours of market activity!

And that was the wrap, with the USDZAR closing out around R13.85/$...

The Week Ahead 14-18 January 2019)

The Rand has kept on the front foot starting the week, but we are expecting it to lose a bit of ground after the last 2 weeks push stronger.

We have a few possibly triggers for moves this week, with the UK parliamentary vote on Brexit on Tuesday and SA interest rate decision later in the week.

Interestingly, the Elliott Wave patterns are starting to show their hand and the next few weeks and months could be interesting indeed if these play out. We are hoping to share some of this in a webinar later this month, so watch this space...

Until then, all the best for the week ahead - and please remember to keep your emotions out of your foreign exchange decision-making process.

We are here to help, so please give our free trial a shot.

Best regards,

James

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