It has happened.
As long expected, the Rand was downgraded to #JunkStatus - but with some mitigation, as S&P dropped the guillotine, and gave SA a fat stamp of #JunkStatus as local debt was downgraded (as Fitch kept their rating stable at 'junk' status).
But there was some mitigation, as Moody's placed SA on review for a downgrade, waiting to see what comes out of the ANC conference & Budget in February 2018.
So...what next?
First, lets review how the week went. There will be more on the effects of #JunkStatus...
How It Happened (20-24 Nov 2017) |
Our forecast on Friday showed a path which few may have believed - with the Rand at 13.97, the expected trend was down further to 13.75-13.55...
Click to enlargeAnd over the next few days, we saw some key events and triggers...
- Mugabe relinquishes power (eventually) - the dictator, after 37 years of reign in Zimbabwe has finally ended his reign with a resignation...about time too!
- #JunkStatus - this once was hanging over our head all week, waiting with baited breath until Friday...
- JSE hits all time high - a very good week for the JSE as it hits record levels
And at first it seemed the Rand was reacting just as you would expect, but then as the bad news snowballed, it did just the opposite:
This week was always going to be a big one, what with:
- The situation in Zimbabwe still hanging in the balance...
- The credit ratings decision...
- The ever nearing ANC Conference...
Thankfully, the Rand gave us a fairly slow start to the week, with Monday staying calm. A small range traded, and while the Rand lost a little ground, it was minimal as the day closed around 14.10...
The latest polls are that Deputy Cyril Ramophosa is likely to be the next ANC President.
That is...if there is a fair election.
Anyway, onwards to Tuesday - and what a day that turned out to be!
Remember remember, the 21st of November - Robert Mugabe is no longer the president of Zimbabwe. 37 years of dictatorship reign is finally over, and the country of Zimbabwe celebrated like never before.
So, with the towel finally being thrown in, and a new era for Zimbabwe begins...
(this must send some shockwaves through South Africa political circles)
For the Rand it was positive news - in anticipation of the event, it had already strengthened after hitting as high as 14.14, to break below R14/$.
However, the negativity remained...with economists views saying that SA downgrade is perhaps not 'if' but 'when'...
Most thought that the Rand was helped by Mugabe's ousting, but if the downgrade happened, it would not be enough to save the week...
News from Wednesday was that the latest Reuters poll indicates Friday’s credit rating review is split down the middle. The rand is 'forecasted' to lose up to 5% should we see a downgrade.
Calendar events were SA inflation figures and following that, US FOMC meeting minutes later in the evening.
Really though, all eyes were on S&P and Moody’s on Friday. They would be delivering their ratings review of South Africa. The risks were real...and the effects of the risks becoming reality even more scary.
With that being said, the Rand was still strengthening despite the risks surrounding it. Fin24 predicted SA would have to confront a debt selloff of about R100bn should Moody's & S&P cut rates...
The Rand made it as far as R13.80 late on Wednesday...this gave many some hope!
Our forecast was also due, and that was released to give an updated outlook for the coming few days - it was going to be a bit of a bumpy ride...but our other forecasts were needed to get a complete picture.
Click to enlargeThursday provided us with the news that Fitch has held SA Ratings at Junk level with a stable outlook.
Highlights for the day apart from Fitch's announcement, was the SARB Governor set to make a decision on interest rates.
And as expected, they kept the rates on hold...
Thursday was thanksgiving day in the USA, and lower volumes of trade were expected.
Onwards to Friday - all eyes were still on the rates - the big one being Moody's as S&P and Fitch were already at 'junk' level.
So...to downgrade, or not to downgrade.
That question was facing rating agencies S&P and Moody’s - and their planned time of answering those questions was at 18:30 and 23:00.
It was also Black Friday which meant a frenzy of excitement across the world where it is celebrated, with massive discounts and deals aplenty.
In other news, polls are suggesting that if the ANC elections are free and fair, Cyril Ramaphosa should have enough support to win. The Conference agenda has been released, with the all-important Presidential vote taking place on December 17th.
From the early hours of the morning, the Rand weakened, and by midday, it had broken through R14/$, even touching a high of R14.04 to the Dollar...
...this was before any news had hit at all? What was going to happen if SA was downgraded...?
And then the market turned again.
And who would have believed that at just a bit after 8pm SA Time, the Rand would be touching R13.82/$?
Another example of how an economists view cannot be trusted - where was the news to move the market? Most of South Africa was expecting the Rand to be downgraded to #JunkStatus and yet, it had gained over 20c in an afternoon...?
And, finally - the decision came:
- S&P had downgraded SA's local debt to junk
- Moody's had placed SA on review for the downgrade - some hope, but not much.
And so, well after 11pm on Friday night, the Rand sky-rocketed to hit R14.15 in a matter of minutes - a near 35c flash crash...what next?
On the back of that, the market ended the week on a definite low...
The Week Ahead (27 Nov - 1 Dec 2017) |
While most woke up with a #JunkStatus hangover, Monday has opened with a bang with the Rand jumping out the starting blocks to drop below 13.8200...
...who would have expected this (apart from those that had our forecast on Friday).
Once again (as so often happens) the market moves counter to all expectations.
We will be giving you our thoughts on the implications of #JunkStatus.
This week is likely to have some further surprises as we head into the last month of the year, with the ANC conference the next big one ahead.
Time to keep our eyes off the news and on the charts for direction:
Look forward to helping succeed~
Kind regards,
James Paynter
