Well, well… what a week for the Rand.
2020 has certainly kicked off with a bang, as the Rand has endured one of the worst starts to the year in its history.
In just 31 days, we have seen one of the more tumultous months, with US-Iran Tensions, Trade War Deals, Brexit countdowns, Trump's impeachment, Eskom & SAA's collapse...
...and the Rand did not disappoint in creating its own bit of havoc.
We now sit all of 100c higher than where we began the year at R13.94. Crazy!
But where do we see things going in the next few months...?
Read on to find out!
And it was another week of action, with plenty of big talking points:
- SAA - the poor airline continues to crumble, with stacks of cancelled flights and another massive bailout...
- Eskom - load shedding is back for the first time under Andre De Reuter, and warning of much more to come as Eskom performs long overdue maintenance...
- Moody's Review - with the clock ticking toward the next Investment Rating Review, Moody's gave us the first update...
- SA & US Trade - now with Phase 1 of the China deal complete, the US is looking toward Africa for the next Trade Deal
- Brexit - after nearly 4 years of back and forth, it was finally D-Day for Brexit to actually happen!
- Coronavirus - the deadly Chinese illness was declared a global health emergency, sending countries into panic stations
First things first, the Rand was fairly calm to start the week, trading gently around R14.40 to the Dollar..
But that was all about to change ... all too fast.
Right from the start, sentiment generally was on edge. The market was a bit choppy, as everyone waited and watched to see what happened during the course of the 5 days.
Locally, all eyes were on SAA & Eskom - the two problem ridden SOEs were battling more than ever.
Firstly, SAA was out of cash. During the course of the week, they secured a loan from Development Bank of Southern Africa, for a fat R3.5bn. Half of that was coming from SA's commercial banks & institutions, who do not normally throw money at any lost causes…
...however, this one is a little more complex than that. Before any of the banks would loan cash, they asked for a watertight surety from the government.
So what does that mean?
It means that should SAA default, the government will bail them out. Who then foots the bill if that happens? The tax payer.
So this is a relatively risk-free decision from the DB of SA, and should not been seen as their vote of confidence. Even as it is, experts could not see how the loan was justifiable.
The gravity of the situation is plain for all to see, as SAA cancelled a host of local & international flights, disrupting customers travels once again. Where is this one going to end? Any guesses?
And the same questions were being asked of Eskom, as more load shedding took place this last week, carrying into the weekend. Andre Du Ruyter was blunt in justifying this, saying that they had no other option, with long overdue maintenance needing to take place.
It seems patience will be needed to see if he can steer the train back onto the rails without the whole thing falling over!
This was enough pressure on its own to make investors jittery, and then it was the whole Coronavirus debacle on top of this.
The figures are changing every day in terms of how many are in quarantine, ill and have been killed by the virus, but by Friday it was nearing 10,000 cases, 200 deaths and around 60 million in quarantine...
...China's economy is already slowing, and the virus is only set to spread, with cases reported worldwide.
The jittery Rand wobbled its way to midway through the week, already trading close to R14.70...
And then in other news:
- What was most critical to all of the State Owned Enterprise issues, was what Moody's view on SA's whole economy would be, as we neared the next ratings review. Many were fearing the worst, that Moody's would issue a statement come 3rd February to say that SA was officially #JunkStatus...but that is not going to be happening. Moody's gave us an update this last week saying "It's too early to judge South Africa's progress" and that Economic growth data is “not pointing to a positive or a particularly negative direction. There is nothing really to flag for the time being.” And so they will keep us waiting a little longer, with the official date of review being March 27. In the mean time, the IMF wants SA to "speed up reforms urgently"…
- In economic figures, markets & reports: The price of oil has dropped 16% this month as low Chinese manufacturing and decreased travel to and from the country are predicted. The US Fed kep interest rates unchanged, and the BoE followed suit and kept interest rates on hold.
- On the Brexit front, the UK, after nearly 4 years of turmoil, was set to exit the EU at 11pm on Friday, which they duly did. Overall effect from 11:00pm to 11:01pm should not be too much to note… but we will have to see what follows in terms of trade deals, and the slight decoupling of the UK economy from the EU. Interesting times!
- And in Trade War news, it was now South Africa's turn to get involved, as the US is now looking at reviewing their African Trade Agreements. The government is not particularly keen on this, and will caution Trump against a "premature" trade review… more on this to unfold over the coming months.
And as for the Rand...eish!
The last 2 days saw catastrophic losses, as we flew higher and higher against the Dollar, Euro and Pound. By Friday evening, we saw the Rand hit R15.00 vs the Dollar, R16.60+ against the Euro and R19.80 against the Pound!
We are now on the cusp of some very crucial inflection points for these markets, and will be watching them closely.
And that was the wrap...!
The Week Ahead (3-7 Feb 2020) |
Well, after a bruising week last week for the Rand to end of an abysmal month, can February deliver a reprieve?
This week we have 2 big market movers to look at (US trade balance and US Nonfarm Payrolls), as well as Coronavirus, Brexit aftermath, SAA/Eskom and Trum's impeachment trial.
Where does this leave the Rand?
Well, things are not looking to rosy for the Rand in the short term, based on what the Elliott Wave patterns are telling us and we expect a very volatile coupe of weeks ahead, with some key levels to watch.
To get a look at what we are speaking about, use the link below to get access to the latest forecast. No charge. All yours for 14 days.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~
James Paynter
