New Finance Minister the catalyst for Rand strength

Phew, a week of action in SA politics - and the financial world!

The Rand came into the week with jitters, and plenty of them. The situation with Nene was making things fairly uneasy, and I am sure everyone remembers last time the Finance Minister was fired...

...when Gordhan got dumped in February last year in May, and the Rand went for a loop of almost 50c, and over R1 in the days following

...or the #Nenegate and Van Rooyen scandal back in 2016, which saw the Rand spiral multiple Rands higher

This year however, was a little different.

Let's review how it all happened!

First things first, on Friday the 5th of October, we issued our forecast for the next few days.

A topping out in the short term was expected in the 14.65-15.10 area. This meant we were in for a bit more upside, but then we should see some Rand strength for the remainder of the week (click image to enlarge):

Click to enlarge

There were a number of big news events from the week:

• Nene out, Tito in - the major talking point for the week was of course, Finance Minister Nene's resignation and replacement by Mr. Mboweni...
• SA Credit review - Friday was the big day, with Moody's penciled in to give their report on SA's credit rating, but this could also be postponed until after the mid-term budget.
• IMF Growth forecasts - more doom and gloom in terms of GDP and growth, as the IMF also downgraded its outlook for SA
• VBS Mutual Bank Heist - a damning SARB-instigated report shows how 53 persons, including some big political names, managed to loot VBS to the tune of R1.9bn!...
• Hurricane Michael - another damaging and destructive hurricane crashed into the US with immense force, destroying parts of the Florida coastline with 220km/h winds!

The market hit the ground running from Monday, with Finance Minister fears driving bearish sentiment...

All too quickly, the USDZAR market had moved from R14.73 to R14.98 around the open of business.

There was no clarity on Minister Nene.

Supposedly, his resignation letter had been sent in, but the Presidency said it had not received anything as yet...

...and so the waiting game rolled on.

The Rand consolidated some of those losses, and made its way through to Tuesday, where Ramaphosa announced that he would make an announcement on Nene's future at 4:30pm SAST.

Surely this would have triggered a ZAR collapse?

Well, economists were worried. Investors were worried. History suggested they had every right to be worried.

BUT...

That does not guarantee anything. In fact, it only clouds your judgment.

The Elliott Wave Principle said we were due for the market to top out - and that's all that mattered to us (not looking for any reasons, as economists do...)

And that was exactly what we got...

...between 14:00 and 24:00 (midnight), we saw the Rand strengthen 50c, to touch below R14.55...!

The appointment of Finance Minister Tito was a good decision - granted. And business leaders hailed it as one of the finest appointments in recent memory

But no one could have seen such a positive Rand move.

Not based on previous history of finance minister changes.

The Rand had to consolidate some of its gains over the next few days, which saw it open Friday at R14.65, but it had been a great recovery from Tuesday's high of R15.06...

However, there was a lot more to the week. Here's a few of the other headlines:

• The IMF followed suit with the World Bank, and downgraded its outlook for South Africa's GDP growth. SA now sits at 0.8% forecasted growth for 2018, down from 1.5%. This also followed SARB's decision to lower growth projections. Overall, this made a tough case for Moody's, as their decision to move SA to 'junk' status would be extremely detrimental to the country.
• The mid-term Budget Speech this month (which was going to be delivered by Nene), is surely going to be one of the most difficult ones for a Finance Minister to deliver. It was difficult enough, following the poor 2018 growth thus far, but for Mr. Mboweni, he has got a mountain to climb. He is coming in 'cold' so to speak, with no expectation of suddenly being given the job of Finance Minister. Now, with only a few days left, he has to prepare for his second biggest speech of the year... A tough test of character for him! Tax analysts believe he will leave the bold, more drastic moves, for later next year when the annual budget speech is due.
• Tencent, the massive Chinese tech company with interests in almost every sector of business, has now lost over $200bn on its shares - record breaking figures! However, they were not the only ones, as other tech giants like Amazon lost over 7%, and the the Dow Jones plummeted almost 1500 points. It really seemed to be a pretty dark patch for global markets, but the Rand was loving it!
• A 148-page report entitled “VBS Mutual Bank — The Great Bank Heist”, was released on Wednesday morning and makes a number of explosive findings, including that an amount of R1.894m was gratuitously received from VBS by some 53 persons of interest, both natural and juristic, over the period 1 March 2015 to 17 June 2018. Persons implicated include the ANC's top 5 in Limpopo, and EFF Deputy Floyd Shivambu's brother Brian (who allegedly gave Floyd R10m). Will heads roll? Or will they simply be redeployed and promoted?

• Hurricane Michael caused all sorts of worries for the US during the course of the week, as it struct the Southern coast the country, hurting the State of Florida the most. Hopefully this provided some distraction for the strong Dollar to allow the Rand to make up some ground! 😉

The last day of the week was a bit of a mixed back for the Rand, as it strengthened down to nearly R14.40/$, before losing ground again in the late afternoon, taking it back over R14.50...

The day ended with no news yet on Moody's decision, which was normal for the Credit Rating agencies to leave it until later in the day...

...but it did make one wonder if they really would make a call before the mid-term budget?

Anyway, that was that. The week was over. Overall, top-class for the ZAR!

The Rand has started the week on the front foot, breaking below last week's best levels, with more strength expected.

It appears that Moody's have now delayed their announcement until after the Mid- Term Budget Speech - probably a good call! So it's wait and see time!

This week sees the EU-Brexit Summit which could bring some extra volatility.

Overall though, we will forget the news and focus on the sentiment patterns themselves. And we suggest you cut through the noise and do the same, giving you an objective view to offset your natural tendency to make emotionally-charged decisions.

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To your success~

James Paynter