Volatility, choppy trade ... Rand up, Rand down ...
... this week had it all!
Wild swings seemed to be the order of the week, as we saw the local currency wobble along the tightrope once again.
Plenty of local and global news made for plenty of triggers - and while the traders enjoyed the volatility, it made it rather a nightmare for the business owners.
We are at an interesting time when it comes to global markets, particularly in stocks and the Dollar with how far it has weakened over the last few months, and then finally rebounding this week.
But for us, the focus remains on the Rand, and what the charts are telling us...
So let's get into the full review, and see if we can uncover some clues as to the future.
Firstly, here were some of the major talking points from the last few days:
- Ramaphosa's action - finally, with the backing of the NEC, Ramaphosa appears to be taking control of the ANC and it's corruption...
- Load shedding - a combination of catastrophic power station failures meant that SA had to endure STAGE 4 power cuts!
- US economics - better jobless claims (thanks to a technicality), poor private payroll data and excellent non-farm payrolls...what direction is the US heading in?
- Stock markets - a long overdue correction saw traders panic with all major markets taking a pounding
To kick things off, SA had a bright start to the week with President Ramaphosa laying down the law late on Monday, confirming that all officials accused of corruption should step aside from their positions.
Markets cheered the news, with the announcement seen as one of CR’s most decisive moves during his reign.
It all really began with the NEC throwing their weight behind CR, giving him the authority and confidence to come out with some of the more authoritative statements of his presidency - one which has not been nearly as effective as promised.
It now remains to be seen what comes of this latest change in to a more aggressive stance...
As for the Rand, it kicked the week off with the same volatility that carried the whole way through - chopping and changing its feet, as the Dollar finally began to firm after a torrid few weeks.
But even with the good news for Ramaphosa and crew, the headaches remained with trying to dig SA out of the hole the pandemic has created on top of existing issues.
And Eskom wasn't helping.
The old saying was applicable - "It never rains but it pours"…
...as the country attempts to find its feet under level 2 lockdown, Eskom has not made things any easier as the power utility implemented stage 4 (yes, that’s a four!) loadshedding.
And while the facts and figures are hard to measure as to what is lost when these sorts of disasters occur, Bloomberg put together a chart showing the effect that electricity supply has on GDP:
Saving Eskom is paramount to SA's post pandemic future. Without this being resolved, it is going to be like sailing a ship with the anchor still dragging on the ocean bed.
And then in other news:
- Over in the US, an array of jobs data came out to give us a fresh look at the US economy in August, and it made for some very interesting reading. Firstly, the private payroll data disappointed yesterday as 428k jobs were created, while markets had estimated 1.17m new jobs. Then it was turn of the jobless claims, which gave a bit of a mixed picture - it totalled at 881,000 which was down from the previous figure of over 1 million, but this was at least partly due to some changes in seasonal calculations. And then finally on Friday, Non-Farm Payrolls and Unemployment Rate, which made for the best reading of all with 1.37 million workers added and the unemployment rate falling down to 8.4%! So a mixed bag, but some positive news for all economies battling at the moment.
- But things were not quite as rosy for the stocks - as we have noted over the last few Rand Reviews, we have seen amazing gains since the crash back earlier this year, but it cannot go on forever. Everything is overvalued and overhyped. Sentiment at an extreme. Things have to turn. And turn they did, and by SA close on Friday, the NASDAQ had tumbled 1300 points, S&P500 300 points, Dow Jones 1500 points, all just in the space of 2 days. This next week is going to be quite something to watch!
- Other worries for government locally were the companies and institutions who had 'weathered' the pandemic storm through to now...but this is when the worms come out of the wood, after a sustained period of financial pressure. Denel is one who now risks being placed in business rescue or liquidation very shortly if the situation does not improve. And you have got the South African Post Office which the Treasury is warning could collapse, if there is no restructuring. The time for action for Cyril and team is now or never...!
As for the Rand, we saw the same old choppy trade carry through the week, but finally settling into its rhythm on Friday, trading down to test into the R16.50s again.
This was a strange period, as the Dollar Index had strengthened through the week, and yet the Rand managed to strengthen against the Dollar - showing how the ZAR is its own kettle of fish.
And so the Rand closed the week out on a high note, turning the tables on all the negative news!
The Week Ahead (7-11 September 2020)
As we look to the week ahead, there are a number of big events for us to keep our eyes on, especially in Europe, as we look for triggers for some market movement:
- SA - GDP, Current Account Q2
- USA - Initial Jobless Claims
- UK & EU - GDP, Interest & Deposit Rate Decision, Monetary Policy Statement
That said, there is a lot more to focus on then just the above both locally and internationally, with global stock markets having a possible follow-through on last week's selloff, a countdown to the US elections being one week closer, and economies trying to get back to some normality amidst the ongoing pandemic.
So the uncertainty prevails - which means continued volatility!
Where does this leave the Rand?
The Rand could have some more steam left to push stronger, but don't expect it to be one-way traffic if our Elliott Wave based forecasting system is to be believed.
It is likely to be an interesting week once again.
When the market is highly volatile, it is extremely difficult to make rational and educated decisions - which most often mean doing EXACTLY the opposite of what your emotions are telling you.
And that is why we continue to rely on our Elliott Wave based forecasting system to give us a scientific-based objective view of where the market is likely headed in time and price.
You saw how this helped us and our clients keep ahead of the game, while many were caught off-guard ....AGAIN!
I sincerely do trust that YOU were not one of them...
...because this week is not likely to be any different!
We are watching 2 key levels the next couple of weeks, which will confirm our longer term wave counts.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~