And with a flash, we are into December - where has the time gone?

The last month of the year kicked off with an exceptionally thin week in terms of economic data, both locally and abroad, setting the stage for a challenging week for the South African Rand.

With limited events to trigger investor sentiment, the Rand faced the challenging task of mustering up support after a lacklustre performance the previous week.

A short review, but a couple of important happenings to discuss - let’s jump in.

Key Moments (27 Nov -1 Dec 2023)

These were some of the major headlines over the last five days:

• Inflation Watch:Producer price inflation in South Africa rose almost a full percent between September and October, creating concerns for consumer prices in the New Year.
• Treasury’s Lifeline to Transnet:South Africa’s National Treasury has agreed to provide a support package to Transnet in an effort to assist the collapsing rail and operator to improve finances and performance.

The Rand opened trade at R18.78/$ bright and early on Monday and started the week on the front foot for a change, gaining 10c on the US dollar despite a dearth of economic data.

While November has historically been a fairly good month for the South African Rand - this year has been a bit different.

The local unit declined against the greenback last month, but perhaps more concerningly, it was one of just four emerging market peers that weakened in the period. A notable contrast since 2018, during which time the Rand has strengthened in four of the five Novembers in between.

While many emerging-market currencies have felt the impact of the strength in the safe haven dollar last month, it would be unfair to ignore that a lot of the Rand’s challenges are also due to domestic issues. Persistent power cuts, constraints in rail and ports, and being placed on a "grey list" by international financial regulators have played their part in hindering economic growth.

Now, adding to the concerns for investors, a new risk has surfaced:

The Reserve Bank confirmed last week that discussions are underway with the National Treasury to explore tapping into foreign-exchange reserves to address the country's expanding budget deficit. In October, South Africa's budget balance data revealed a deficit of R41.23 billion, higher than the deficit of R40.57 billion reported in the corresponding month last year.

Additionally, the South African Revenue Services released trade balance figures for October, indicating a deficit of R12.66 billion.

Net outflows from South African stocks and bonds in the year through November totaled R98.1 billion, surpassing the R43.4 billion outflows recorded in the same period last year, as per central bank data. And non-residents' holdings of South African bonds have decreased to 25.4% - down from nearly 40% four years ago.

This signals inherent vulnerability in the Rand and reflects the subdued sentiment in South Africa, which, sadly, coincides with the resurgence of severe load shedding.

Of importance, Volkswagen issued a cautionary message to President Ramaphosa in the week, expressing their concerns about their future in South Africa due to fragile supply chains, persistent load shedding, and slow regulatory reforms.

Needless to say, as the largest employer in the Nelson Mandela Bay metro with a workforce of over 3500 employees (and a multitude of supplier business depend on them), this statement triggers apprehensions for Saffers.

Speaking of fragile supply chains…

…South Africa's National Treasury has now approved a R47 billion support package for the troubled rail and ports operator Transnet, to aid in improving its finances and performance.

Immediate access to R22.8 billion will be granted under a guarantee facility, with the remaining funds subject to strict conditions. Transnet faces inefficiencies that have led to shipping delays and job cuts and had requested a state equity injection to address its substantial debt and fund a turnaround plan.

Issues at Transnet, including corruption, mismanagement, and pandemic-related losses, have persisted over the past decade to such an extent that even Portia Derby, appointed CEO three years ago to address the challenges, had left the company amid the ongoing situation.

So much for rail and ports, what about electricity?

Well, as we know, loadshedding was ramped back up to stage six last week but there could be light at the end of the tunnel (mind the pun)...

…but at what cost?

Last week, the Minister in the Presidency for Electricity, Dr Kgosientso Ramokgopa, received the first shipment of energy equipment donated by the People's Republic of China.

The “donation”, part of the Technical Assistance Programme established in August 2023 during China's Head of State Visit to South Africa, includes 450 gasoline generators. These generators, valued at R167 million, are intended to be distributed to public service facilities nationwide.

Additionally, China is providing a grant of around R500 million as development assistance.

How nice!

We’ll hold off on praising this move for now until we find out what this actually costs (monetarily or otherwise) - there are sure to be some strings attached which benefit China..

The Rand flopped around for most of Tuesday and gained on Wednesday morning to R18.55/$ but slowly slipped back toward R18.70/$ following poor local PPI results.

On Thursday, the Producer Price Index, a key indicator for consumer inflation, increased from 5.1% in September to 5.9% in October but remained within expectation.

Notable contributors to this rise include the categories of coke, rubber, and plastic products, which saw a 5.8% year-on-year increase, contributing 1.6 percentage points…

…while food products, beverages, and tobacco products recorded a 5.0% year-on-year increase, contributing 1.3 percentage points to the overall increase.

Later that day, the release of data on personal spending and inflation in October showed that the personal consumption expenditures price index, excluding food and energy prices, increased by 0.2% for the month and 3.5% on a year-over-year basis. These figures aligned with US Fed expectations and increased bets that the Fed might have more incentive to keep rates steady or consider cutting them in 2024.

However, they maintained flexibility for further tightening if progress on inflation were to stall, pushing back against market expectations for swift rate cuts. Again.

Additionally, personal income and spending both rose by 0.2% for the month, meeting estimates and suggesting that consumers are keeping pace with inflation…

…albeit overlooking the source of income, whether that be a second or third job.

In other US economic news, initial weekly jobless claims rose to 218,000, up by 7,000 from the previous period but slightly below the estimated 220,000. However, continuing claims, which lag by a week, surged to 1.93 million, an 86,000 increase and the highest level since November 27, 2021.

Back to the Rand, by Thursday it had given up all gains made in the week and was headed into Friday at R18.85 for a single greenback...

...and R24 for a single British Pound - which interestingly our outlook the prior week had anticipated to a tee.

(Click to enlarge)

But before we close out, let’s take a look at a few other ehadlines that grabbed our attention last week:

• China's National Bureau of Statistics (NBS) issued a warning to local authorities regarding the fabrication of statistics and interference in data collection processes. This move is part of an ongoing effort to enhance data accuracy and refine economic decision-making at the national level. The NBS specifically pointed out instances of data falsification in the southwestern province of Guizhou and interference by county governments in the northwestern Shaanxi province. However, the statements did not disclose specific details such as the names of regions involved, the nature of the falsified data, or the imposed punishments.
• India's economy exceeded expectations, recording a robust growth rate of 7.6% in the three months to September compared to the same period a year ago, according to government data released on Thursday. Despite facing challenges such as rising inflation and multiple interest rate hikes by the Reserve Bank of India (RBI), India continues to maintain its position as the fastest-growing major economy globally. The growth is attributed to factors such as a strong performance in the manufacturing sector, increased consumption, and heightened government spending in anticipation of upcoming elections.

On Friday, the US dollar edged lower as traders assessed data indicating a slowdown in inflation and anticipated a speech later in the day by US Federal Reserve Chair Jerome Powell.

Pushing back on expectations of economists and markets anticipating Federal Reserve rate cuts as early as March, Powell stated that it would be premature to speculate about when policy might ease...

...yet again emphasising that Fed policymakers are making decisions on a meeting-by-meeting basis.

Ultimately, the markets are still eagerly awaiting Powell to move beyond reiterating the message that the Fed is prepared for further hikes - a theme that has been consistently emphasized since the last quarter-point hike in July.

The US dollar took a step backward following the Fed Chairman's speech and emerging currencies had an opportunity to capitalize late in the week. The Rand followed suit and gained about 20c to the dollar on Friday to close out the week - and start December - on a positive note.

The Week Ahead (4 - 8 December 2023)

Here's what we'll be eyeing up over the next five days:

• SA:S&P Global PMI, GDP Growth Rate YoY (Q3) ,Current Account (Q3)
• EU/UK:EU GDP Growth Rate QoQ 3rd Est (Q3)
• US:ISM Services PMI (Nov), Non-Farm Payrolls (Nov), Unemployment Rate (Nov)

Local GDP results will be in focus next week, though there are major concerns that the results are likely to be downbeat…

…owing to economic challenges persisting in various sectors, despite some improvements in electricity supply in the quarter.

The drive for greater self-sufficiency, operational issues at Transnet, stricter financial conditions, weaker global demand, and lower commodity prices are expected to have contributed to a moderation in output across most sectors in the third quarter.

While some sectors, such as accommodation income, food services, passenger transport, and real credit extended, have seen positive year-on-year growth…

…mining, manufacturing, electricity, construction, wholesale and retail sales, and vehicle sales have experienced big, big declines.

Join us again next week to find out the results.

See you then!

To give you a little helping hand, feel free to take our Rand forecasting service for a test-drive!

Please take our Rand forecasting service for a test-drive!

This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.

Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.

If you have any questions or feedback, please leave them below.

To your success~

James Paynter

P.S. Enjoyed this Weekly Rand Review? Click here to get our Weekly Rand Review in your inbox every Monday