Reality always takes a while to sink in.
Many times, this is because of the after-the-fact analysis which takes place to see just where things stand.
And then panic and fear becomes real.
It was so internationally, as fears of a global recession and financial market collapse increased with poor growth figures on the back of the unfolding coronavirus pandemic.
And locally it was no different.
Everyone knew that the result of Eskom's fiascos late last year had hurt the economy. But nobody knew quite how much.
This last week, we got an insight into just how much...
It was another tough week for the ZAR - let's get into the review.
Firstly, our forecast on Friday (the 28th of Feb) painted the picture for the next few days.
We sat at R15.62 to the Dollar, with the next target being R15.84-16.37 over the next few days...a wide target range, but that is to be expected in a climate like we have seen over the last month.
Following that target level being hit, we would expect to see a significant retracement from the market back down. See below the forecast:
And then here were some of the top headlines from the 5 days:
- Technical Recession - while a shocker, this did not come as a surprise as South Africa slipped back into a technical recession with yet another GDP contraction
- Rate cuts - the panic around the Coronavirus continues to take hold, as multiple countries implement rate cuts
- Pension funds - Ramaphosa made his clearest comments yet in relation to pension funds, indicating that they will be fact be used for Eskom...
- Coronavirus - the global spread continues, with massive increases of cases in South Korea, Italy and SA's first case confirmed
- Chinese manufacturing - the effects of the virus are now being seen in actual economic releases, as China's manufacturing took leap off a cliff!
On Monday, the markets opened with a bang!
After closing around R15.62, opening prices gapped up to show R15.85!
While the market did not take long to track up there, it was exactly as per our forecast from Friday, and we had now hit our target levels...
Monday was a blue one as the Coronavirus continued to make the headlines, and businesses who depended on China suffered. This was shown with the release of Chinese manufacturing PMI data, showing a sharp decline to 40.3 index points in February, from 51.1 points January. This figure shows just how devastating the coronavirus has been on the Chinese economy.
However, by Tuesday, the Rand was back to its crazy self:
- It had traded back as low as R15.35 on Monday evening
- Only for SA's Q4 GDP to come out on Tuesday morning confirming what everyone had suspected already: a -1.4% contraction, confirming a recession with just 0.2% growth in the whole of 2019.
- The market however, had already pushed 20c higher before this news even hit...and touched as high as R15.62 after it came out.
And then the BIG one came...
To the surprise of many, the US Fed made a HUGE decision to cut interest rates by 0.5% to stave of a threatening global recession as a result of the coronavirus pandemic.
This was probably their most important decision since 2008 financial crisis days, but it should not have come as a surprise - the market had already told the Fed what was needed, with 3 month Treasury Bill and 10 year bonds yields having already fallen sharply prior to the announcement.
10-year Bond yields have now fallen to record lows - 0.7%!
With this news trigger, the Rand roared stronger against the Dollar, at one stage trading 46c stronger in a single hour of trade!
Phew...what a week already!
And it was only Tuesday...
(However, this was exactly as per our forecast from Friday - crazy, right?)
The Elliott Wave Principle just has a knack…sometimes we don't even know ourselves how it can be so accurate BEFORE events even happen to trigger the markets lower!
Back to the GDP - serious concerns surround where the economy is going in 2020. The country is officially in a recession again, which is going to require some serious heavy lifting from the government to turn around. Is this possible?
It is the last thing Ramaphosa and Mboweni needed just before Moody's crucial ratings decision...
...the reality of it is that Zimbabwe, the crippled nation from years of Dictator Mugabe's communist tirade, now has the same IMF predicted growth rate as South Africa for 2020. And this is with the US extending sanctions on the country beyond March 2020 just this last week.
Is South Africa Zimbabwe?
No, not yet....
BUT it is well on it's way, with the ANC's zealous commitment to its Soviet-inspired (Communist) National Democratic Revolution (NDR)...
... a road that they believe will lead to a socialist nirvana, but instead is the unmentioned elephant in the room (as Anthea Jeffrey highlighted once again this last week) - and will lead to the same devastation seen up north.
Then in other news:
- Locally, Eskom continued to be in the headlines for all the wrong reasons, as debt and unstable supply continues to plague them. Most concerning was Ramaphosa's comments this last week as to pension funds, saying "Pension funds shouldn't be 'fearful' of Eskom". He suggested that the revamped Eskom split into 3 would be worth investing in. These types of comments are particularly concerning in advancement of the NDR. In other news, Ramaphosa is most interested in selling of some of Eskom's plants to private companies to run.
- The panic of coronavirus, or CVOID-19, continues to grip nations worldwide, with warnings of even deeper contractions in China's economy, following news on the huge manufacturing downturn results. The WHO has warned that every nation across the globe can expect this virus to breach their borders at some stage...so it is only a matter of time.
- Following the Fed's rate cut, the Bank of Canada is the latest central bank to follow the Fed’s lead, with New Zealand, Mexico and Brazil all predicted to be next in the cutting line. Back home, SARB Governor Kganyago insisted there is no need for an emergency meeting and any risk will be discussed when the MPC meet in two weeks time.
On Wednesday, we released our next forecast for the coming few days.
Even with the market having come off the highs so drastically, with the market then at R15.25, our counts still showed that we would bottom in the 15.32-15.12 area before breaking higher toward R15.62...(see below)
We once again were in for an interesting few days...
And that was just what we got, as the market jumped higher over Thursday and Friday, despite the US Non-Farm Payrolls coming in on Friday at almost 100k higher what they should have been - 273,000 vs 175,000.
And while the Rand has been taking a beating the past few weeks, so has the Dollar , as the Dollar Index, as it fell to its weakest levels in a year - debunking the 'rational' theory that the Rand will weaken when the Dollar strengthens and vice-versa.
Friday provided some choppy trade, but we saw the Rand eventually close in the R15.60s...
The Week Ahead (9-13 March 2020) |
Sjoe, well what a start we have had to March already, but I think it is going to be a case of this being the new normal with volatility at highs not seen for a good while.
There will be plenty to keep the markets on their toes, from the unfolding Coronavirus pandemic to global stock markets internationally, with the ECB rate decision thrown in the mix.
And then, of course, there is the countdown to Moody's fateful decision...with Ramaphosa, Mboweni and co having very little time left to convince them to give one last chance...Ramaphosa's comments this week on pensions funds will not have helped...
But yet again...this promises to be a BIG week...so strap in tight!
As for the Rand, we will continue to focus on what the patterns are telling us to give an objective view of direction - last week showed what such a view can do for you in the midst of such a volatility-filled week....
To get a look at what charts we are looking at and using to give direction, 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
