Another week dominated by politics slips by...
This one filled with more topsy-turvy movement, on the back of political unrest and further concerning decisions from President Zuma.
What is happening right now is having longer lasting effect than most realize - however, some see light at the end of the tunnel in what has happened in Zimbabwe, where Mugabe's firing of the VP in favour of his wife resulted in a military coup (of sorts, as the dictator is still hanging on, refusing to resign).
Isn't it strange that Zuma is thinking of doing this too.
This spells trouble, though for some, they see some hope.
As for the Rand...well, that was another story! Out of the blue, it turned things around on Thursday & Friday, despite all the bad news!
Fortunately, our analysis was ignoring the news, and focusing instead on the unfolding sentiment patterns - and as a result, gave clients a clear heads up of the imminent reversal. Always satisfying when this happens!
Lets take a look at how it unfolded...
How It Happened (13-17 Nov 2017) |
Friday's forecast showed we were still to go a bit higher before we would top out...
Click to enlargeAnd over the next few days, we saw some key events and triggers, each of them enough to send panic into an already frazzled Rand market:
- Higher Education Rumours - Zuma wants to make Higher Education free...where exactly does the country find R40bn for this in its budget?
- Michael Sachs Resignation - National Treasury is rocked by Sachs' resignation, as he is steamrolled by Zuma
- Zimbabwe Coup - Mugabe put under house arrest, and the military is in control of Zimbabwe...uncertain times.
- Nuclear Deal - supposedly it is back on the agenda once again...(despite there being absolutely no money available)
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:
To look at things in a bit more detail:
The threat of higher education being announced to be free, combined with the possibility of Deputy Ramophosa being ejected from being Zuma's VP AND Michael Sachs resigning from the treasury, meant it really was a blue Monday.
The weight of political and economic worries continues to grow. What next?
Whatever the case, the Rand took a pummeling.
By mid-afternoon, it had touched R14.57...its worst level since November last year.
Michael Sachs was seen as one of the few who knew very well what he was doing in the treasury - and as of Monday, he had been steamrolled by Zuma. And his resignation hurt the Rand in the short term (what the long term effect of this will be is another story).
Onward to Tuesday...Highlights were Central Bank speeches from the US Fed, ECB and BoE in the afternoon.
And off the bat, the Rand swiftly moved down as far as R14.35 - it was not clear as to what had caused such a drop, but this did not stop the rampant negative vibes (see Moneyweb's article - Is It Too Late To Panic? and Fin24's Article - Rand Goes From Best To Worst Carry Trade In 2017)
The Rand then endured some rocky paths over the next 24 hours or so, bouncing between 14.30-14.44...with some news surfacing that the nuclear deal is apparently it is back on the table (Putin not taking no for an answer?)
And then of course we had the announcement that the military had taken control of Zimbabwe and that Mugabe was under house arrest.
Lots of news to digest (for those that try and look at news for market direction).
For us, however, it was a case of buckling down and interpreting what the market itself was telling us about direction. With the Rand having achieved our target area on Monday, it was time for our next short term forecast update.
And the outlook was clear, the next big move was going to be DOWN...(contrary to all rational thinking)
Click to enlargeAnd oh boy, did the market back up its intentions with action!
As you can see in the above picture, the Rand turned everything on its head on Thursday & Friday, leaving economists (and most South Africans) scratching their heads...
Almost when everyone had given up hope, we saw the Rand gain over 50c in just 2 days, having topped out in the anticipated target area ( and in so doing validating our Near and Medium Term projections as well).
It was honestly some of the most confusing and counter-intuitive movements there had been all year...
...but yet, exactly as per the preferred Elliott Wave count.
Yet again proving the lesson:
Trust a system. Not your emotions.
I guess, some could say that there was a bit of positive news floating around - such as PSG Founder's article on South Africa's Opportunities
But the fact is, all eyes are on the politics to see how the next few months play out - and the outlook either way is not looking pretty.
But with another week closing out, the Mighty TZAR had pulled a rabbit out the hat with the momentum on its side...for once!
The Week Ahead (20-24 Nov 2017) |
So Monday starts off with the Zimbabwe crisis still unresolved, as a defiant Mugabe refuses to resign, despite protest marches and calls from his own party for him to step down (hmmm, now where have we heard this one before?)
And, of course, we have the impending Moody's credit rating announcement hanging over our heads - is #JunkStatus at the doorstep?
Not a week to greet with any enthusiasm, but if our updated forecasts from Friday are anything to go by, there could well be some unexpected surprises.
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Kind regards,
James Paynter
