Another week, another 5 days of indecision as the Rand slowly edged stronger.
Back under R14/$ is good news for importers and investors (not so good for exporters!), but although it has edged lower, the week's move has remained in a tight band.
Amidst the slew of global news, economists are battling to rationalize what is 'moving' the market.
The fact is, sometimes the markets tread water for a while before we see the market starting to trend again as the underlying sentiment bubbles to the surface.
This is what the Rand is awaiting...
...but for now, let's get into the review to see if we can find any clues for the future.
Here were some of the big headlines from the last week:
- Interest Rates - SA's big interest rate decision was due, and it remains to be seen the influence of stimulus, inflation and more on what SARB will do in the coming months
- Israel Conflict - no respite in the Gaza strip region as huge conflict continues, with Israel refusing to be bullied by Hamas and international opposition to their defending Israel territory, until eventually a resolution of sorts was reached...
- Cryptocurrency Boom & Bust - a capitulation of Bitcoin and other major currencies send shockwaves through the industry as many new investors burnt their fingers horribly...where to next?
- Commodity Prices - the story of the year has been the explosion of commodity prices which continue to cause huge inflation risks...when will it end?
And so the open of the Rand was around R14.12 to the Dollar, as the local unit continued to get stuck in the same narrowing band of trade, with a range of a mere 70c in the last 5 weeks...
While this may not sound very small, it is a lot for the Rand in the way that the market normally trades - having moved some 22c per day on average the past few years!
This week was a big one as everyone awaited news on SA's interest rates.
Considerations for the Reserve Bank were far and wide, both local and global, as the playing field had shifted since their last meeting with big changes in inflation in the US - an indicator for the global economy.
But this waited on Thursday.
The week began with global news taking centre stage as the Israel-Hamas conflict continued. Israel refused to be bullied and continue to take out key targets across the Gaza Strip, weakening the terrorists resources and positions - including underground tunnel networks.
The international view was for an immediate cease-fire and peace agreement...but there is no peace without war.
Things eventually continued on until Thursday, when a cease-fire was finally agreed upon - but certainly not without huge advances having been made by Israel.
This area will remain a key focus in the coming weeks, as tensions are still at boiling point - and this can well affect markets as potential trigger which we will keep watching.
The Rand rode all of this news with a bit of uncertainty, especially as spikes of cases popped up in East-Asia, threatening of more supply chain issues should more lockdowns happen.
Stats SA released April’s consumer price inflation figures on Wednesday which accelerated to 4.4% y/y, the highest reading in more than a year and up from 3.2% in March. The statistics agency also published retail sales figures for March, which took another knock as a third wave looms, contracting by 2.5% y/y following a 2.2% expansion in February.
By Thursday, the local unit had traded sideways for the most part, until the Interest Rate Decision came along:
And then we finally got some direction for the week, as the Rand accelerated stronger vs the Dollar, breaking down as strong as R13.89 by Friday afternoon!
The SARB insisted that the uptick in inflation (now 4.4%), was just temporary, and that their next move of interest rates was going to be up...
...for now however, they remain the same as we await their next meeting.
And then in other news:
-
The big talking point of the week was not forex, nor stocks, nor bonds or commodities - but cryptocurrency. The buzz word is everywhere at the moment as the frenzy of BTC hitting well over 60,000 USD has really caught everyone's attention. But this week things were a little different. On Wednesday, markets absolutely capitulated like many new investors had never seen before, with Bitcoin free-falling over 13,000 USD in a few hours of trade before rebounding all the way back again all within the same 24 hours!
Other markets lost over 50%, as huge panic swept across the industry. As always, the media tried to rationalize these moves with news such as Elon Musk saying Tesla will not accept Bitcoin anymore (no fundamental difference in the market) and China banning cryptocurrency (they already did this in 2017), and US Treasury calling for stricter control of Bitcoin (just what has been expected for months if not years).
The fact is this: the market was WAY overbought. We have been expecting a correction for the last few weeks, and have been calling for a topping out around 60,000 USD to break down into the $43,000-28,800 area for some weeks now. Our Elliott Wave based forecasting system called it again, as another trend came to an end...
Bottomline: Don't follow the herd. It is dangerous ground to be on!
- Despite cryptocurrency taking centre stage, commodity prices also made headlines as lumbers frantic trade continued. Commodity prices have been on a one way track for the last 12 months, and they are becoming to form what appears to be another bubble. What is so concerning about the way that the economies are now being patched together with huge stimulus is this: it is not just like 2008 where the bubble was in the housing market. The levels of stimulus that we are seeing mean that the bubble is EVERYWHERE. Everything is being affected by printing of more dollars...it is just taking time for the worms to come out the woodwork.
And all of a sudden, it was Friday already...
SA was waiting with baited breath for news on Friday evening as it was a make-or-break event for the strong Rand as investment grade rating agency, S&P Global, will publish its review of the local and international fiscal applications within South Africa.
Research conducted by independent researchers have indicated that S&P will likely maintain its current rating of BB- as the country’s economy has been in a difficult position the last six months. The positive side of not downgrading South Africa again is that it delays future downgrades and can give the country a chance to recoup the large losses created by the pandemic. If a downgrade does occur, it may have a snowball effect and other credit rating agencies could follow suit in November.
No news emerged on Friday afternoon/evening that could affect the Rand, as it traded steady beneath R14.00 through the afternoon.
And that was the wrap!
The Week Ahead (24-28 May 2021) |
As we look ahead to the last week of May (already!), the outlook from an event point of view is very quiet, with just a handful of ones to watch in the United States:
- Consumer Confidence
- Jobless Claims
- GDP
- Durable Goods Orders
- Treasury Sec Yellen Speech
- Goods Trade Balance
But there will be plenty to keep the markets on the edge, with continued tensions aplenty in social, political and financial arenas globally.
Once again, we will be keeping our eyes on what the Rand itself is telling us based on our Elliott Wave based forecasting system to give us some clues for the days, weeks - and possibly months - ahead.
Please take our Rand forecasting service for a test-drive!
This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.
Simply use the link below to get access now. No charge. No card. All yours to trial 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
