It’s that time of the week again!

Welcome back to another episode of your favourite Weekly Rand Review, where we bring you up-to-date with the local unit's most recent gyrations and surrounding events.

After weeks of pain and turmoil for the local currency and the economy as a whole, local investors received a much-needed week in the sun as the Rand, along with most emerging economies, enjoyed a week of gains as sentiment shifted over the possibility of the US Fed shifting gears in regards to their monetary tightening cycle’s trajectory.

Fundamentally, a string of data points indicate that there are still numerous hurdles and headwinds that the Rand faces, with several local and international forces still threatening to derail any sustained progress.

It was an eventful week, to say the least. Here’s how it panned out.

Key Moments (20-24 Mar 2023)

These were some of the highlights over the last week:

• Local Inflation Woes - Saffers will be forced to dig even deeper into their pockets as consumer inflation makes a U-turn, increasing for the first time in four months, with food costs leading the charge.
• SA Consumer Scepticism - With local consumer confidence (if we can still refer to it as such) continuing to plummet, the IMF added to the scads of blows already dealt to the local economy by slashing its growth prospects for SA to a meager 0.1% for 2023.
• US Interest Rate - On Wednesday, the US Fed confirmed a widely expected 25 basis point rate hike for March while also indicating a possible pause in further increases following the collapse of SVB and Signature Bank in the previous week.
• UK Inflation Rises - Consumer inflation in the UK rose unexpectedly in February, as energy bills and food prices continue to rise, adding further pressure to already irritable British households.

So, let's dig into the detail.

It was a shortened week for local traders, with the country celebrating Human Rights Day on Tuesday, but there was no rest for the markets, with several important data results due in the second half of the week.

The Rand got underway at R18.38/$ on Monday morning...

...but was quickly set on the backfoot as investors feared the worst over the National Shutdown and protest action expected in the day. South Africa’s third-largest party, the EFF, called for a National Shutdown as it continues to demand the resignation of President Cyril Ramaphosa and an end to loadshedding, among other things.

With concerns rife over the possibility of seeing a similar situation to that of the unrest in July 2021, the vast majority of businesses decided to keep their doors shut as a precautionary measure…

…which didn’t help the outlook of the already undesirable-looking local economy! While the lost productivity on the day will likely be recovered over a few weeks, the damage caused to the economy is significantly longer-lasting.
Concerns over political turmoil and an economy that ground to a halt on Monday were enough for investors to shy away from the Rand, causing it to breach R18.60/$ by mid-morning...

...NOT a good start to the week!

With no major data points expected, the local unit traded sideways in the mid-R18.50s for the rest of the day and through the Public Holiday on Tuesday.

There were two key data points scheduled to be released on Wednesday, the first of which was the local CPI results and then the big one, the US interest rate decision.

Unfortunately for Saffers, the local inflation rate broke its recent downward trend, quickening to 7% in February from 6.9% in January, while core inflation also shot up to 5.2% from 4.9% a year earlier to mark its highest level since February 2017. The price of food and non-alcoholic beverages also showed poor results, increasing by 13.6% over the last 12 months, the highest since 2009.

Aside from soaring food prices, consumers are in for even more pain as the National Energy Regulator (NERSA) granted Eskom the approval to move ahead with a significant 19% average electricity tariff hike!

Unbelievable, but true!

Speaking of Eish-kom - following the ANC’s threats of legal action on the power utility’s former CEO, Andre De Ruyter, reports in the week have indicated that Mr. De Ruyter has “disappeared” following his explosive interview last month. De Ruyter did indicate that he may leave the country for a while, saying that it may be “better for his health,” and the ANC confirmed in the week that they have been unable to locate or contact De Ruyter to deliver his summons since.

Not surprising at all...

...but it will be interesting how this develops over the next few weeks.

Back to economic news:- The poor local inflation reading came just one week before the SARBs second interest rate meeting for the year and perhaps all but locked in a further increase, which is widely being tipped at 25 basis points. Since SARB began lifting rates in November 2021, the cumulative increase stands at 375 basis points, pushing prime rates to 10.75% and likely to shortly reach 11%!

But, perhaps the greater concern is that food inflation is likely to remain high for a while due to the elevated cost of doing business in SA, along with a weaker exchange rate which will add to producer price pressures.

Not a good outlook, especially when we’re sitting on the cusp of a recession!

Meanwhile, following a drop in inflation from 6.4% to 6% in the US, the Fed announced on Wednesday that it would increase rates by the widely-expected 25 basis points…

…while also indicating that it could consider pausing further increases after the collapse of two US banks the previous week and contagion fears still lingering. The relatively dovish tone from the Fed gave riskier assets like the Rand a bump in the right direction, with investors dipping their toes back in on signs that the latest increase could be the last for a while.

Emerging economies enjoyed a flurry of support through Wednesday evening’s trade session...

...and the local unit (for a change) was not left behind (for a change), dropping from R18.47/$ before lunch to R18.15/$ by Thursday morning. The greenback continued to shed through most of Thursday, and the Rand got all the way down to sub R18.10 levels, but as we’ve become accustomed to in the local economy...

...trouble was just around the corner.

South Africa’s energy supply woes and deepening cost of living concerns are becoming evidently critical, and the Consumer Confidence Index (CCI), a measure of the mood of consumers in SA, underlined this in the week by dropping to -23 in Q1.

But that’s not all....

Shortly after the CCI results were released, the IMF announced that it had cut South Africa’s growth prospects to a meagre 0.1% for 2023, down from its original 1.2% projection made in January. The local economic outlook has nosedived in 2023, with political instability, being greylisted by the FATF, and the ongoing energy crisis…

…and this was just the latest of a string of finance groups and some of SA’s biggest banks to sound the alarm bells relating to the local economy’s paltry growth prospects.

The global lender also pointed out that South Africa’s public debt is among the highest in emerging markets and is set to continue rising based on current policies…

…including (but certainly not limited to) Eskom’s debt relief and, of course, the current structure of the public-sector wage bill.
The IMF concluded by advising that major reforms were needed in rationalising state-owned enterprises, fighting corruption, and tackling high unemployment, among other issues, in order for the country to improve positive social spending needs and manage climate shocks.

Nothing we didn’t already know.

Getting it done, though, is a different story altogether - just ask De Ruyter!

Before we wrap up the week’s events, here’s a quick look at some other news from around the financial world:

• Inflation in the UK rose unexpectedly in February, with the cost of food and energy bills drilling holes in the pockets of already pressured households. The UK CPI increased to 10.4% YoY in February from 10.1% in January and 1.1% on a monthly basis.

  The surprising U-turn was the first for the UK following three months of contraction and comes at a time when the country is already experiencing mass strike action over disputes relating to pay and work conditions.

• Bitcoin backers have been reaping the rewards of their loyalty as the largest cryptocurrency by market share experienced one of its best weeks of the year.

  The token has improved by as much as 60% this year and gained more than 5% last week following the Federal Reserves comments earlier in the week. Bitcoin is now flirting with the $30,000 mark, a level last seen in June 2022.

Most emerging currencies continued their rallies into Friday…

…but with renewed inflation concerns coupled with the IMF’s downbeat projections for the foreseeable future, the local unit couldn’t hold on to its gains and eventually petered out the week a shade below R18.20/$.

Could have been a lot better, but we’ll take what we get!

The Week Ahead (27-31 Mar 2023)

In a relatively thin week of economic data, here’s what we’ll be keeping an eye on over the next five days:

• SA: Interest Rate Decision, PPI YoY (FEB)
• EU/UK: ECB Consumer Confidence Final (MAR), UK GDP Growth Rate YoY Final (Q4)
• US: CB Consumer Confidence (MAR), GDP Growth Rate QoQ Final (Q4), PCE Price Index YoY (FEB)

All eyes will be on the SARB next week as they unveil their latest plans to combat inflation that has reared its ugly head once again, though the most likely outcome to us seems like another 25 basis point bump. With the Fed showing signs of yielding as the effects of its monetary tightening policy take effect, this is the ideal opportunity for emerging currencies, particularly the Rand, to take back chunks of the ground it’s lost over the last year…

…though we should keep in mind that the local economy’s greatest enemy is itself!

Based on our current forecasts, we are likely to be in for some interesting weeks ahead (and surprising ones, if you are presently still 'winging it' with the management of your Rand exposures)..

Until next week!

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To your success~

James Paynter