Budgets and Shuffles...Rand Takes The Hit

Being a finance minister is all about growing the country's economy.

It is solutions to problems. Which in turn provides an environment to grow the country's economy. No matter how difficult an economic climate you are trying to work in. And this is why Gigaba is the wrong one for the job.

It was proved this week in his speech - too much talk, no real plan, and therefore no action.

And that, on the back of Zuma's 12th #CabinetReshuffle, meant that the Rand took a pounding.

This is now a combination of economic and political pressure beginning to weigh down on the local currency.

It meant that it was sent spiraling to R14/$ and above.

So...a tough week. Any positives? Lets take a look...

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And this was how it unfolded...

Key takeaways:

Key events of the week -

• Gigaba's Mini Budget Speech - the event which defined the whole week...and not in a good way. Finance Minister's first speech was nothing short of a disaster.
• #JunkStatus worries - as a follow-on to the Budget Speech, worries over Junk Status resurfaced in earnest once again.
• Rand rushes to worst level of 2017 - ZAR vs USD, EUR, GBP all hit highest (worst) levels of 2017
• Zuma firing of Ramaphosa - these rumours continued...was it just a rumour, or were the murmurings true...?

Rumors of President Zuma looking to replace deputy Ramaphosa meant that some fresh political risks were lurking. If Zuma were to replace him with his ex-wife, that could really be a trigger for some sky-rocketing markets.

The big local event for the week - Gigaba's mini budget speech on Wednesday. This was going to be one for the ratings agencies to watch.

Global events were US and UK GDP figures and ECB President Draghi speaking.
An anxious market limped through to Wednesday, hovering around the R13.70/$. The market was edgy, and as was South Africa & Investors alike.

All eyes were on Wednesday's speech.

And this continued through Tuesday.

It was clear that the big 3 (Fitch, S&P and Moody’s) will require some serious convincing to give SA another chance. A downgrade looks horribly on the cards. The downgrade would take SA’s foreign and local currency debt to “junk” (next review is in November).

The choppy market continued through until Wednesday, when the Budget Speech was finally due...this is where the week was going to be defined.

Apart from that, it was UK Q3 GDP figures being released at 10:30am.

As for the speech...it did not start well.

EFF members decided to make a nuisance of themselves (as always) and eventually ended up leaving the building. Just while this was happening, the Rand lost a lot of ground.

And then the speech began.

While Gigaba's ability to quote figures and speak is excellent, his planning is not. In fact, it is clear that he has NO plan to turn things around. It was a hollow speech. Filled with nothing but confirmation of broken promises from the start of the year.

You can read my full article over here where we go over this in more detail
As he spoke, and in the hours after, the Rand moved from below R13.75, to over R14.10/$...

...a double team of Zuma's shuffle and now this, meant the local currency had taken an absolute pummeling. Gigaba tried to explain this...watch here

Following that, with the market at 14.0491, it was time for our forecast (see below - click to enlarge). And it looked like the trend was not about to stop - R14.19-14.48 was the expected target area within the next few days, and then top out...

Click to enlarge

Thursday was 'budget hangover day'. For South Africans, and the Rand.

All eyes were now on "junk status" which appeared to be more a formality than anything else according the local analysts. The speech had done nothing to help calm investor or credit rating agencies' nerves, and had rather worsened things.

On the back of these threats, the USDZAR market was volatile on Thursday. Worrying spikes took it as high as R14.29/$, pushing 2017's worst level even higher.

Also on Thursday - ECB Interest & Deposit Rate decisions were going to be made - always big triggers.

The markets bumbled through to Friday, with USDZAR over R14.20, EURZAR over R16.40 & GBPZAR over R18.50...

Friday.
And while many had lost all positivity, some person's kept saying things like "South Africa is not in a crisis"...

...however, with the Rand at its worst level of 2017, and fuel prices due to increase, things were not looking good.

Moneyweb's article said it all which you can read by clicking this link - "Winter is here"

The situation was made further evident on Friday, as we saw the market continue to weaken during the morning, making headway as far as R14.35/$...

...however, in the afternoon, there was a mini Rand rally, which saw a retracement closer to R14.10/$.

What could have possibly caused something like this? There was no good news, but all that mattered to us was it meant a perfect validation of our forecast as the market topped out in our target area...once again.

...and with that, the week closed out.

Well, Monday has started with the Rand looking to fight back from last week's pummeling...we have some key levels to watch for to confirm whether a larger degree correction is underway or not.

This week promises to have some news triggers, with the US likely to be the biggest contributor as rumours abound on possible indictments in the Trump Russia investigation amidst breaking news around the Clintons involvement in selling 20% of US uranium - and the Democrats funding of the Trump Russia 'fake dossier'...political fun and games ahead!

And of course Friday is the big one with US Non Farm Payrolls...

So expect a roller-coaster week for the Rand once again.

In such times, one can get taken up with emotions and outcomes, but you need is a framework that assists you in making rational and informed decisions.

You can see how clients were kept ahead of the game - before any news hit. just imagine what this would have done for you? Less stress, less time reading and watching the news looking for direction, more time to focus on what really matters...and more money saved.

In essence, more peace of mind.

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Look forward to helping succeed~

Kind regards,

James Paynter